Understanding the Harami

What is the Harami?

The Harami is a candlestick pattern that consists of two candles. The first candle is a large body (bullish or bearish), and the second candle is a smaller body that is entirely contained within the range of the first candle. The Harami indicates a potential reversal or weakening of the current trend.

How is the Harami Identified?

The pattern is identified by:

1. First Candle: A large bullish or bearish candle.
2. Second Candle: A smaller candle that opens and closes within the body of the first candle.

When to Use the Harami

The Harami pattern is used to:

• Identify Reversals: The pattern can signal a potential reversal of the current trend, especially when it appears after a strong move.
• Confirm with Other Indicators: Use other technical indicators to confirm the signal for more reliable trading decisions.

Formula Example

To identify the Harami pattern:

1. Check the First Candle:
   • Condition: A large candle with a significant body.
2. Verify the Second Candle:
   • Condition: The second candle should be smaller and entirely within the range of the first candle’s body (i.e., the open and close prices of the second candle are within the open and close prices of the first candle).

For example:

• First Candle: Open = 100, Close = 110
• Second Candle: Open = 105, Close = 107
• Condition Met: The second candle’s body is completely within the range of the first candle, indicating a Harami pattern.

Parameters

The parameters for identifying the Harami pattern include:

• Data: Defines the type of data to use for the pattern.

  • Value: ohlc
  • Description: The pattern uses Open, High, Low, and Close prices.

• Previous N Candles: Number of preceding candles to check.

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Checks for the Harami pattern in the last N candles.

• Pattern Type: Specifies whether to identify the pattern as bullish or bearish.

  • Default Value: :bullish
  • Drop Display Values: Bullish, Bearish
  • Drop Down Values: :bullish, :bearish
  • Description: Determines the type of Harami pattern to identify.

Conclusion

The Harami candlestick pattern is an important tool for recognizing potential reversals in the market. It is most effective when used alongside other technical analysis methods to confirm the signal and enhance trading decisions.