Harami Candlestick Pattern: How to Spot and Trade This Reversal Signal
The harami candlestick pattern, named after the Japanese word for pregnant, is a two-candle reversal signal where a small real body nests inside the larger body of the prior candle and shows that the current trend may be losing momentum.
Key Takeaways
- The harami pattern is a two-candle reversal signal that warns of trend exhaustion, with the second candle real body sitting completely inside the first candle real body.
- Reliability is moderate at roughly 55 to 60 percent on daily charts, and the pattern functions best as an early warning rather than a standalone entry trigger.
- The pattern produces the most useful signals on daily and weekly timeframes where the contrast between the large first candle and small second candle is easy to read.
- A key confirmation rule is to wait for the next candle to close in the direction of the anticipated reversal before entering a trade.
- The harami cross variant, where the second candle is a doji with no real body, signals even deeper indecision and can lead to sharper reversals.
How to Identify a Harami Pattern on a Price Chart
A harami pattern consists of two candles that appear after a clear uptrend or downtrend. The first candle has a long real body that shows strong directional conviction in the current trend. The second candle has a small real body that sits entirely inside the real body of the first candle. A bullish harami appears after a downtrend: a large bearish candle is followed by a small bullish candle. A bearish harami appears after an uptrend: a large bullish candle is followed by a small bearish candle. The shadows of the second candle can extend beyond the first candle body, but the real body must stay fully inside. The smaller the second real body relative to the first, the stronger the signal.
- First candle must be a large candle with a long real body in the direction of the trend
- Second candle real body must sit completely inside the first candle real body
- Shadows of the second candle can extend beyond the first candle body without invalidating the pattern
- A bullish harami forms after a downtrend with a bearish first candle and bullish second candle
- A bearish harami forms after an uptrend with a bullish first candle and bearish second candle
What Does the Harami Pattern Tell You About Price Direction?
The harami pattern signals that the prevailing trend is losing steam. Unlike the engulfing pattern, which shows an immediate and aggressive shift in control, the harami suggests a more gradual transition. The large first candle represents strong trend continuation. The tiny second candle reveals hesitation in the market. For a bullish harami, the appearance of a small bull candle after a large bear candle tells you that sellers are losing conviction. For a bearish harami, a small bear candle after a large bull candle indicates that buyers are running out of energy. This pattern often appears before a consolidation phase or a gradual trend reversal rather than a sharp turn.
- Signals trend exhaustion rather than an immediate reversal
- Bullish harami: selling pressure is fading and buyers may step in soon
- Bearish harami: buying pressure is fading and sellers may take control
- The smaller the second candle relative to the first, the stronger the indecision signal
- Often precedes a consolidation period rather than a sharp reversal
How to Confirm a Harami Pattern Before Entering a Trade
I spotted a bearish harami on TSLA daily chart in November 2023 after a 25 percent rally over six weeks. The first candle was a large bullish candle closing near its high with above-average volume. The second candle was a tiny doji that gapped slightly higher and stayed inside the body of the prior candle. I did not short immediately. A harami needs confirmation. I waited for the next candle to close below the low of the harami pattern, which happened the following session. TSLA dropped 9 percent over the next week. Confirmation methods include waiting for the next candle to break in the direction of the reversal, checking for RSI divergence on the 14-period RSI, and ensuring volume is declining on the second candle to confirm the loss of momentum. Place a stop loss on the opposite side of the first candle body and target a 1:2 risk-reward ratio.
- Wait for the next candle to close in the direction of the anticipated reversal
- Check the 14-period RSI for divergence when the harami appears
- Declining volume on the second candle confirms momentum is fading
- Place the stop loss beyond the opposite side of the first candle body
- Target at least a 1:2 risk-reward ratio for any harami-based trade plan
Common Mistakes Traders Make With Harami Patterns
The most common mistake is treating a harami as a standalone entry signal. The pattern is a warning, not a trigger. Many traders enter immediately when the second candle closes, only to watch price continue in the original trend direction. Another error is confusing a harami with an inside bar. An inside bar requires both upper and lower shadows to stay within the prior bar range. A harami only cares about the real body. A trader who uses inside bar rules on a harami may miss valid setups. The pattern also fails when it forms in a sideways market without a preceding trend. The harami needs directional context to carry meaning. A harami in a range is just noise.
- Do not enter a trade based on the harami alone without a confirming signal
- Do not confuse harami with an inside bar, which uses shadows instead of real bodies
- Avoid trading harami patterns that form in sideways or range-bound markets
- Never ignore the higher timeframe trend when evaluating a harami for a reversal
- A second candle that is too large relative to the first may not be a valid harami setup
This page is for informational purposes only and does not constitute investment advice. Trading stocks, forex, and crypto carries substantial risk of loss. Past performance does not guarantee future results. Always consult a qualified financial advisor before making trading decisions.