Harami Meaning- Japanese Term Explained
What Does Harami Mean?
The word harami comes from Japanese. It literally translates to "pregnant" or "being with child." In the context of financial markets, harami describes a specific candlestick pattern that signals a potential reversal in price direction.
Traders use this pattern to spot moments when the market might be about to change course. It's one of the more reliable reversal signals in technical analysis, especially when you know what to look for.
The Harami Pattern in Trading
A harami pattern consists of two candles. The first candle is large and shows the current trend continuing. The second candle is smaller and sits inside the body of the first candle.
The "pregnant" name makes sense when you visualize it. The smaller candle looks like it's nestled inside the larger one โ like something developing within.
Bullish Harami
A bullish harami appears at the bottom of a downtrend. Here's what it looks like:
- First candle: A large red (down) candle
- Second candle: A smaller green (up) candle that fits inside the first candle's body
This pattern suggests selling pressure is weakening. The market might be ready to turn upward.
Bearish Harami
A bearish harami shows up at the top of an uptrend. The setup flips:
- First candle: A large green (up) candle
- Second candle: A smaller red (down) candle inside the first candle's body
This signals that buying momentum is dying. A downward reversal often follows.
The Harami Cross Pattern
The harami cross is a stronger version of the basic harami. The second candle in a harami cross is a doji โ a candle with virtually no body, just a cross shape.
When a harami cross appears:
- It carries more weight than a standard harami
- It suggests indecision in the market is at extreme levels
- Reversals following a harami cross tend to be sharper
The bullish harami cross (doji after a down candle) and bearish harami cross (doji after an up candle) are watched closely by traders who focus on candlestick analysis.
How to Trade the Harami Pattern
Here's a practical approach to trading this reversal signal:
Step 1: Identify the Trend
Harami only matters if there's an existing trend. Look for a clear downtrend or uptrend on your chart. The pattern works best after moves of at least several candles in one direction.
Step 2: Confirm the Pattern
Check that the second candle is genuinely inside the first. The second candle's body should not extend beyond the first candle's high or low. The smaller the second candle, the stronger the signal typically.
Step 3: Wait for Confirmation
Don't jump in immediately. Wait for the next candle to confirm the reversal. If you're trading a bullish harami, the confirmation candle should push upward. For bearish harami, it should push down.
Step 4: Set Your Stop Loss
Place your stop loss just beyond the high or low of the first candle. This keeps your risk defined if the reversal doesn't materialize.
Step 5: Manage the Trade
Take partial profits as the trade moves in your favor. Move your stop loss to break even once you have comfortable profit cushion. Don't hold indefinitely โ harami signals reversal points, not new trend starts.
Harami vs Other Candlestick Patterns
Here's how harami compares to similar patterns:
| Pattern | Structure | Signal Strength |
|---|---|---|
| Harami | Large candle + small inside candle | Moderate |
| Harami Cross | Large candle + doji inside | Strong |
| Engulfing | Small candle + larger opposite candle | Moderate to Strong |
| Doji | Single candle, no body | Weak alone, strong in patterns |
The engulfing pattern is often confused with harami. The difference: in an engulfing pattern, the second candle completely covers the first. In harami, the second candle fits inside the first.
Other Meanings of Harami in Japanese
Outside of trading, harami (่ นใฟ, ใฏใใฟ) means "pregnant" in Japanese. It can also refer to the belly or internal organs in certain contexts. The trading term borrowed this "containment" meaning to describe the smaller candle being contained within the larger one.
In some Japanese dialects, harami can mean "inside" or "contents." The common thread is something being within or contained by something else.
Limitations of the Harami Pattern
Harami isn't foolproof. Like all candlestick patterns, it has drawbacks:
- It doesn't tell you how far the reversal will go
- False signals occur, especially in choppy markets
- It works better when combined with support/resistance levels
- Volume confirmation strengthens the signal
Use harami as part of a broader strategy. Relying on it alone is a good way to lose money.