What’s a Harami Cross?
A harami cross is a Japanese candlestick pattern with a considerable candlestick moving in the trend direction and a little doji candlestick coming behind it. The previous candlestick’s body contains the doji. The harami cross pattern indicates a potential reversal of the preceding trend. Patterns can be optimistic or pessimistic. Bullish and bearish patterns indicate price reversals to the upside and downward.
Understanding
A bullish harami cross pattern appears after a decline. Sellers are in power when the first candlestick is a lengthy down candle (black or red). The second candle, the doji, opens with a limited range above the previous day’s closing. Doji candlesticks close around their opening prices. The preceding candle’s body must include the doji.
The doji indicates the seller’s indecision. Traders usually don’t move on the pattern unless the price rises within two candles. This is confirmation. After the doji, the price may linger for a few candles before rising or falling. A climb over the first candle’s opening suggests a price increase.
After uptrends, bearish harami crosses emerge. Buyers are in charge of the first candlestick, a long candle in white or green. A doji indicates buyer indecision. The doji must again fit in the candle’s body.
Pattern confirmation occurs when the price lowers, continuing to increase after the doji invalidates the bearish pattern.
Harami Cross-Boosters
Traders may act on a bullish Harami cross immediately or wait for confirmation. Pattern confirmation is a price increase. In addition to confirmation, traders may value a bullish Harami cross at a significant support level. If it does, a further price move to the upside is likely, especially without overhead resistance.
Traders may also monitor technical indicators like the relative strength index (RSI) rising from oversold territory or other signs confirming a move higher.
Before acting on a bearish harami cross, some traders like the price to fall. Additionally, the pattern may be more prominent around a significant resistance level. Technical indicators such as the RSI falling from an overbought zone may indicate a negative price trend.
Trading the Harami Cross Pattern
There is no need to trade the Harami cross. Some traders use it as a reversal alert. If long, traders may profit from a bearish harami cross and subsequent price decrease. A short-term trader may quit if a bullish harami cross occurs and the price rises within a short period.
Once the harami cross occurs, traders may initiate positions. Enter long on a bullish harami cross with a stop loss below the doji low or first candlestick low. The price above the first candle’s opening represents a probable long entry.
Establish a stop loss above the doji or first candle high if shorting. Trading may begin when the price falls below the first candle open.
Harami cross-patterns don’t anticipate profits. They must utilize another approach to determine when to leave a profitable deal. Possible exit strategies include trailing stop losses, Fibonacci extensions or retracements, or risk/reward ratios.
Example
Below is a bearish harami cross in American Airlines Group, Inc. The price fell in a downtrend but eventually settled into a wide range. The price created a bearish harami pattern after rising into resistance. Following the trend, prices fell. We might depart longs or enter shorts after this affirmation.
After two weeks of decline, the price reversed and broke above resistance.
Conclusion
- A substantial down candle and doji form a bullish harami. A downturn occurs.
- Following the pattern, the price rises after the bullish harami.
- A vast, rising candle and doji form a bearish harami. During an upsurge,
- A price drop confirms the bearish trend.
