Harami Cross

What is Harami Cross?

A Harami Cross is a candlestick chart pattern for a technical setup of a reversal in the trend of a financial asset, for example, stock, foreign currency exchange pair, or cryptocurrency. It happens most often after a high price move, either downward or upward, and is a signal that the price momentum is diminishing, and maybe there is going to be a change or stabilizing trend.

The setup is two candlesticks:

• The first candlestick is a monster, confirmatory candle that follows the leading trend (a long bullish candle in a rising trend or a long bearish candle in a falling trend), indicating strong supply or demand.
• The second candle is a doji, which is a small candle whose opening and closing prices are very close or the same, and the doji is in the shape of a cross. This doji is entirely within the body of the first candle, indicating that the market is indecisive.

Types of Harami Cross

• Bullish Harami Cross: It forms when there is a downtrend. There initially forms a long bearish candle, and then a doji within it is formed, which means that the sellers are losing control and buyers can enter to reverse the trend in a favorable direction.
• Bearish Harami Cross: Forms in an upward trend. It is a long bullish candle that is succeeded by a doji within the body, a sign of dwindling buying strength and probable reversal down.

Importance and Meaning

Harami Cross is a firm reversal pattern, especially when occurring at significant levels of support or resistance or where high volume happens to occur. The doji is a short pause in the market sentiment, neither buyers nor sellers dominating, and this tends to make traders reconsider their position. Confirmation is necessary though—traders like to wait for confirmation, i.e., strong follow-through candle or additional technical indicators (e.g., RSI or moving averages) to confirm the reversal.

Limitations

Although Harami Cross is a reliable tool, it's not perfect. False signals are most likely to appear when in high-volatility or low-volume markets. It should be used with other technical tools in a bid to increase precision.

Example

Imagine a stock in an uptrend with higher prices. A long green candle is formed, but the next day a doji appears, its range within the entire body of the preceding candle. This Bearish Harami Cross can cause traders to seek a price drop, especially if the stock is near a resistance level.