Harami

A harami is a two-candle pattern in which the second candle’s high and low both sit entirely within the first candle’s high and low—the second candle is “inside” the first. The Japanese term means “pregnant” or “in the womb,” evoking the image of one candle inside another. The pattern signals indecision: after a strong move (the first candle), the second candle shows the market has lost momentum and is consolidating. While it does not predict direction as directly as the engulfing pattern, the harami often precedes a reversal, especially when formed at key price levels or after sustained moves.

The anatomy of a harami

The harami requires exact geometric positioning: the second candle’s entire range (high and low) must fit within the first candle’s range. This means the second candle’s high is lower than the first candle’s high, and the second candle’s low is higher than the first candle’s low.

The first candle is typically large (a strong move in one direction). The second candle is smaller (a move that does not extend the range). The colour of the second candle is less important than its size and position: it can be green or red. A harami cross is a specific variant where the second candle is a doji or near-doji (very small body with wicks).

What the pattern signals

After a strong move (the first candle), the harami shows the market pausing or losing conviction. Instead of continuing in the same direction, the second candle retreats into a smaller range—neither side is pushing to extend the move. This is indecision and consolidation: the market is catching its breath.

Importantly, the harami does not predict which direction the reversal will go (unlike the engulfing, which shows momentum has shifted). It merely signals that the current move is exhausted and a period of indecision or consolidation is underway. What comes after depends on context: support/resistance levels, volume, the broader trend, and any following candles.

Bullish harami

A bullish harami consists of a large red candle (bearish move) followed by a smaller candle that does not extend the downside. This signals that selling has exhausted itself; instead of pushing lower, the price consolidated. This often precedes a bounce or a reversal to the upside, especially if the harami forms at a support level or after a climactic sell-off.

A bullish harami cross (red candle followed by a doji inside it) is a classic setup: after a sharp selloff, indecision emerges, and a rally often follows.

Bearish harami

A bearish harami is a large green candle (bullish move) followed by a smaller candle that does not extend the upside. This signals that buying has exhausted itself; selling may be poised to take over. Again, the actual reversal is only confirmed by what follows.

The distinction from engulfing

The engulfing and harami are mirror opposites in shape and signal:

• Engulfing: Second candle is larger and completely contains the first. Signals decisive reversal of momentum.
• Harami: Second candle is smaller and sits inside the first. Signals indecision and consolidation before possible reversal.

The engulfing is more bullish (bearish) in a bottom (top); the harami is more neutral and requires additional confirmation.

Context and reliability

A harami at the top of an uptrend (a bearish harami) is more meaningful than one in the middle of a flat market. After a sharp multi-week rally, a bearish harami suggests buyers have exhausted themselves. Similarly, a bullish harami at the bottom of a sell-off (after a large red candle) suggests sellers are tiring.

A harami in choppy, sideways trading is less meaningful—it may simply be minor range oscillation that leads nowhere.

The role of the follow-up candle

The harami by itself does not indicate direction. The confirming move comes from what follows:

• A harami followed by a candle that closes above the harami’s high and the first candle’s high suggests a bullish continuation.
• A harami followed by a candle that closes below the harami’s low and the first candle’s low suggests a bearish continuation.
• A harami followed by more consolidation (more small candles) simply confirms the indecision is persisting.

Many traders use the harami as a “setup” pattern: they wait for a follow-up candle to confirm direction before entering.

Volume and the harami

A harami on lower volume than the preceding candle is typical and expected—the consolidation candle usually has less activity than the initial strong move. However, the context of volume on the first candle matters: if the first candle (the strong move) was on high volume, the harami on lower volume reinforces that the move may be exhausted.

A harami on very high volume is unusual and less common; it would suggest intense indecision at the price level, which might lead to a volatile breakout.

Harami versus simple noise

Many small candles inside larger candles occur in normal trading and are not necessarily harami patterns with predictive value. The distinction is context: a harami at a key level (support, resistance, moving average, round number) after a sustained move is more meaningful than one that appears randomly in choppy trading.

Trading with harami patterns

A conservative approach is to wait for the harami and then wait for a follow-up candle to confirm direction. A trader bearish on a stock after a rally (because the price is overextended) might see a bearish harami as a warning signal and prepare to exit or short, but would wait for the next candle to confirm before acting.

An aggressive trader might enter in the opposite direction of the first candle (shorting after a bearish harami, buying after a bullish harami) and place a stop-loss at the harami pattern’s high or low. However, this increases whipsaw risk.

Academic perspective

Academic research finds that harami patterns, like most candlestick patterns, occur at frequencies indistinguishable from random, and outcomes do not differ significantly from chance. The pattern’s popularity among traders is primarily intuitive (a shape that looks like consolidation) rather than empirically validated.

See also