Candlesticks Harami reversal pattern

'Harami' is an old Japanese word for pregnant. The Japanese nickname for the long candle is the 'mother' candle and the small candle is the 'baby'.

The harami candlestick is made up of two candlesticks, and it can be both bearish or bullish, depending on the preceding trend. The first candlestick has a long body and the second candlestick has a small body that is totally encompassed by the first.

There are four possible combinations: white/white, white/black, black/white and black/black.

No matter what the colour of the first candlestick, the smaller the body of the second candlestick , the more likely the reversal. If the small candlestick is a doji, the chances of a reversal increase.



Practical Example

The example below is a bullish reversal harami pattern of Oxiana (OXR) formed on the 21st and 22nd of September 2006. Many swing traders use harami patterns, as a signal to either buy/sell, depending on the preceding trend, however you must wait for confirmation the following day before trading.



In the above example you can clearly see the existence of a short-term downtrend before the formation of the harami pattern. The harami pattern is a bullish reversal harami simply because of the fact that it was formed during a downtrend.

The Harami pattern formed on the Thursday and Friday. Monday confirmed the reversal pattern as the short-term downtrend was broken along with the share price comprehensively over powering the gap of four days earlier. Further supporting evidence of a share price reversal was indicated by the RSI strongly bouncing off the low 30's in conjunction with increased volume being present.

In conclusion, the astute aggressive short-term speculative trader would have drawn upon their skill set to enter the trade at the indicative entry price range highlighted in yellow on the chart.

Please note that the large candlestick on the "confirmation" day was exaggerated because in the early afternoon there were rumours that Oxiana was under takeover speculation.

As this discussion implies, candlestick charting patterns are best engaged as a trading tool when combined with other "western" technical indicators and patterns.