A Harami Candlestick pattern is one that is formed by 2 candlesticks. The first candlestick has a larger body than the second candlestick, and are of opposite colours. In a Bullish Harami pattern, the first candle has a longer red body, while the second green candle is smaller, opening and closing within the body of the red candle. Whilst for a Bearish Harami pattern, the first candle has a long green body, while the second red candle is smaller, opening and closing within the body of the green candle.
In old Japanese, the word “Harami” means pregnant, which is represented by the two candlesticks. The first candle being the mother and the second being the baby. The Harami Candlestick suggests a real and conclusive price movement of the candlestick, and as it is a small candle, it suggests a lower volatility. The Harami candlestick suggests that the market has reached a muted reversal, but when compared to the Engulfing Candlestick pattern, it is a weaker reversal pattern.
When one encounters a Bullish Harami pattern in a bullish trend, we can ascertain the end of a bearish retracement, and one can buy above the second candle of the Bullish Harami pattern for a bullish continuation. In the case of encountering a Bearish Harami pattern during a bearish trend, we can ascertain the end of a bullish retracement, and one can sell below the second candle of the Bearish Harami pattern for a bearish continuation.