Interesting fact, by the way, in Japanese Harami means “pregnant woman”! But let’s go ahead and shed some light on this pattern.

As you might have guessed, the first prerequisite of this pattern is the existence of a trend, a downtrend in this case. If there is no trend, then there is no reversal. Period!

Please, always remember that because I see many beginners looking to identify a reversal in a trading range, that’s impossible. Now, the Harami pattern consists of two Japanese candlesticks.

The first candle is a long black body confirming the direction of the prevailing trend and the bears’ intention to push prices lower. After the first candle is formed one would expect the continuation of the downward direction but unfortunately nothing is 100% in the markets and this is true in the formation of the next candle. The next candle, the second candle that is, has a small real body that opens and closes within the open and close price of the previous body.

The fact that the price action is confined in a small-size candle, indicates the weakness of the bears to push the prices lower. By the way, in the first candle the black real body resembles the mother where the second candle the small one is the baby! Now, I am sure you will remember this pattern.

Now, let’s examine the specifications of the bullish Harami:

1. The first candle is a long black real body in the direction of the established downtrend.
2. The second candle opens and closes within the body of the previous body.
3. The second candle is a small black or white real body.

Excellent! What about any potential buy setups?

Well, a potential buy order may be placed just above the high of the pattern. As I always say never forget to place a protective stop loss at the low price of the Harami pattern.

I hope you learned something new. See you in a while!