The Harami Cross pattern is a two-candlestick pattern that suggests a potential reversal or indecision in the market. It consists of a large candlestick followed by a smaller candlestick that is completely engulfed within the prior candle’s range. This pattern can indicate a shift in sentiment from bullish to bearish, or vice versa.
Understanding the Harami Cross Pattern
The Harami Cross pattern is formed when the second candlestick is a Doji, which means its open and close are virtually equal. The Doji indicates indecision among traders, as neither the bulls nor the bears have been able to gain control during the trading period. This lack of direction following a large move in the previous session can signal a potential reversal.
Key Takeaways
- The Harami Cross pattern consists of two candlesticks: a large one followed by a smaller one that is engulfed within the range of the first.
- The second candlestick in the pattern is typically a Doji, signaling market indecision.
- This pattern can indicate a potential reversal in the prevailing trend.
Identifying the Harami Cross Pattern
To identify the Harami Cross pattern:
- Look for a large candlestick in the direction of the prevailing trend.
- The second candlestick should be a Doji, completely engulfed within the range of the first candlestick.
- The pattern suggests a potential reversal if it occurs after a prolonged trend.
Trading with the Harami Cross Pattern
Traders often use the Harami Cross pattern as a signal to either exit existing positions or to consider taking a position in the opposite direction of the prevailing trend. However, it’s important to wait for confirmation from subsequent price action before making trading decisions based solely on this pattern.
Limitations of the Harami Cross Pattern
While the Harami Cross pattern can be a useful tool for identifying potential reversals, it is not always accurate. Like any technical analysis tool, it should be used in conjunction with other indicators and analysis techniques to confirm signals and mitigate the risk of false positives.
