Harami is a Japanese word meaning pregnant woman. When trading using Japanese candles, these are a pair of one long candle immediately followed by a shorter candle of the opposite type. Harami candles are considered a good way to determine a possible trend reversal.
How do you read Harami candlesticks?
Below on the picture, you have a bullish Harami candle and a bearish Harami candlestick. Remember that the former is to be preceded by a downward movement and the latter by an upward movement.
As mentioned, Harami candlestick pattern appears in pairs. This is usually close to the end of an uptrend or downtrend.
The first candle that appears is a large long one. If it's in an uptrend, it will be a large green candle. If the trend was bearish, you'll first see a large orange candle.
The second candle is a small one of the opposite color. So if the trend was up, this candle will be short and orange. If the trend was down, this will be a short green candle.
What is the difference between a Harami and an Inside Bar?
As a reminder, I give below the Inside Bar graphic.
The two patterning are somewhat similar, but they are two different species. For in Inside Bar, the idea is that the second bar of the layout should fit its L and H values inside the L and H values of the first bar of the layout. Open and Close prices have no meaning here.
What does a harami candle indicate?
In a clear trend, you'll find same colored candles developing one after the other. Longer candles indicate a strong trend. An opposite color candle signals a trend reversal. What makes Harami candles special is that the opposite color candle is smaller than the previous candle. In addition, it usually develops within the opening and close of the previous candle. This is an indicator of a possible reversal. It might also indicate that price correction is imminent before the trend continues in the same direction.
How to trade using Harami candles on IQ Option
Below you will see a bearish Harami pattern on the daily chart of Wheat. This type of Harami is very rarely seen on intraday charts.
The Harami candles are best used when trading for longer periods. In the example above, each candle develops over 1 day. So when the Harami candlestick pair appears the easiest place to enter a position is when the third, orange candle starts developing. This is a clear indicator that the trend is heading down. The most appropriate trade expiry should be set at 1 day. The reason for this is that you don't know for sure if the downtrend will continue or if this is simply a price correction.
How effective is the Harami formation?
The way the pattern works that I have described is the one that circulates in the literature. By nature, the Harami pattern is a trend reversal pattern. In practice, however, it just as often occurs as a pattern heralding a continuation of a trend. A bit confusing, isn't it?
Therefore it is very important to use the Harami candlestick with additional tools. Harami without additional elements to confirm the entry will have very average results. To make the pattern more effective it is advisable to use it in the presence of support and resistance lines, trend lines or important Fibonacci levels.
It is also a good idea to check how often the pattern appears and how effective it is in the context of the assets and time frames you are using.
Now that you know how to analyze and use Harami candles, try using them in your IQ Option account. Then share your results in the comments section below.
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