Harami Cross Pattern

Definition

Harami Cross is a two-candle reversal pattern: the first candle has a large body (bullish or bearish), and the second candle is a Doji (very small or no body) that sits entirely within the first candle's body. The name "Harami" comes from Japanese meaning "pregnant," as the Doji is like a child inside the mother candle. This pattern signals indecision and potential trend reversal.

How to Identify

• Candle 1: Large body, green (bullish) or red (bearish), showing strong momentum.
• Candle 2: Doji candle, very small or no body, wicks may be long or short but the entire body (open and close) lies within the range of candle 1's open/close.
• Volume: Usually decreases on the Doji compared to the prior candle, indicating weakening momentum.

How to Trade

Bullish Harami Cross

• Appears after a downtrend.
• Candle 1 is a strong bearish candle (large red body).
• Candle 2 is a Doji inside candle 1's body.
• Action: Enter long when price breaks above the Doji's high or candle 1's high. Place stop loss below candle 1's low. Profit target can be prior resistance levels or a 1:2 risk-reward ratio.

Bearish Harami Cross

• Appears after an uptrend.
• Candle 1 is a strong bullish candle (large green body).
• Candle 2 is a Doji inside candle 1's body.
• Action: Enter short when price breaks below the Doji's low or candle 1's low. Place stop loss above candle 1's high. Profit target is prior support levels.

Real Example

Assume EUR/USD is in a downtrend. Day one: a bearish candle with a 100-pip body. Day two: price opens near the previous close, fluctuates slightly, and closes near the open, forming a Doji entirely within the bearish candle's body. This is a Bullish Harami Cross. A trader may wait for price to break above the Doji's high to buy, with a stop loss below the bearish candle's low.

Common Mistakes

• Confusing with Inside Bar pattern: Inside Bar can have a small body but not necessarily a Doji. Harami Cross requires the second candle to be a Doji.
• Trading immediately upon seeing the Doji without confirmation: Wait for price to break one of the pattern's highs/lows to confirm direction.
• Ignoring the main trend: Harami Cross works best at the end of a clear trend; avoid trading in a sideways market.

Summary

Harami Cross is a powerful reversal pattern when combined with trend and volume analysis. Traders should use additional indicators like RSI or MACD to increase reliability.