The Harami pattern is essentially a sign of collapsed volatility and the inability of the trend-rulers to keep their dominance intact. The bullish Harami appears as a small body candle with very small shadows, following a series of large black candles in a downtrend. Similarly, the bearish Harami candle is entirely engulfed by the previous white candle. In both the instances, the sudden contraction of range and the absence of a new low are taken as an exhaustion of the prevailing trend. The pattern is found very frequently but can’t be taken as a very reliable pattern.
Most Used Trends of Harami Pattern
Advantages & Limitation of Bullish & Bearish Harami Pattern
Despite the name, the actual breakout direction of a Bullish Harami pattern can’t be predicted with any certainty as the pattern acts as a reversal pattern nearly the same number of times it acts as a continuation pattern. On the other hand, the Bearish version of this pattern acts more as a continuation pattern. Clearly, trading these patterns blindly for reversal trades isn’t likely to pay much.
The trade is triggered when the range of the first candle is breached in any of the directions. Bullish Harami performs better in a bull market and Bearish Harami in a bear market.