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Distinguish the Reverse Signal of “Harami Pattern”!

Written by Kiritsu

Today we’re going to talk about Harami Pattern.

The Harami has been emphatically introduced in the Japanese Candlestick Charting Techniques, and some of you may have heard about it before. Just like Doji and Phospherus/Hesperus, it constitutes a reverse signal on the chart.

The Concept of Harami

Harami consists of two candlesticks; the former is long and the latter is short, and the long candlestick shall wrap the short one up. Pregnancy lasts ten months, not to mention the candlesticks. Although Harami pattern exists as a reverse signal, it doesn’t mean there will definitely be reversions after the appearance of the signal; it requires subsequent candlesticks at different time nodes to confirm the Harami.

Let’s just look at Candlestick 1, Candlestick 2 and Candlestick 3.

★ Candlestick 1, together with the candlestick before it, constitutes a Harami, but the effect is not obvious. It only turns the uptrend into a sideways trend, but the next candlestick constitutes an engulfing pattern with Candlestick 1, invalidating the preceding reverse signal.

That’s why we need subsequent candlesticks to confirm the Harami pattern. If a pattern can’t accurately predict the price, more patterns are needed for confirmation.

Although you may lose some earnings due to waiting, in the futures market, the one who survives to the end is the winner. Blind entry without judgment may leave you with nothing left.

★ Candlestick 2 has a much stronger signal than Candlestick 1.

That’s because it appears in a drastic uptrend, and the long candlestick constituting the Harami with it has a super-long upper shadow. If the entity of Candlestick 2 is in the upper shadow of the previous candlestick, we may need more signals for confirmation.

But Candlestick 2 doesn’t surpass the previous height, and its entity is wrapped by the previous candlestick. That indicates the bid site is in a disadvantaged status now, without boosting power. And the next candlestick of Candlestick 2 is the same. The upper and lower shadows indicate the two sides of people buying long and selling short are fighting fiercely, but the price is closed under Candlestick 2, so the after-market will keep falling.

★ Then let’s look at Candlestick 3.

After surpassing the previous height 6963, Candlestick 3 drops rapidly, forming a super-long upper shadow. But since the shadow hadn’t fully taken shape upon the screenshot, the author keeps a prudent negative view on the trend.

Even if Candlestick 3 forms a Harami upon closing in 4 hours, the main forces still need delivery time. In order to win overselling time, the main forces may sell their overstocked orders for their delivery. Once delivery is completed, the price will go down.

▲ That is one routine.

▼ There’s another routine:

Pull up above 6900~7100; when the upper selling pressure is overloaded, the price will drop rapidly, leading to retracement. The after-market will go up in concussion, where you can buy on the dips. The lower support is 6300; if it is effectively broken, don’t hesitate to stop loss.

All the above is explained based on the candlestick chart, which may be deemed as belated advice of course. Candlestick chart, BOLL, KDJ, and other technical indexes can only provide us a probabilistic view, and nothing is 100% certain.

In fact, I feel relieved about one thing, that is, when we are using the technical indexes, maybe the main forces are using them, too.


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