What is a "Harami"?

[RTFX-Trading]

Candlesticks

In the 1600s the Japanese developed a method of technical analysis to study the prices of futures contracts on rice. This technique is called candlestick chart analysis. Its popularity is a credit to Steve Nison, which has become the most respected expert in the interpretation of candlestick charts.

Candlesticks should be used as a tool in decision making and are not attached to rigid rules. They are most valuable when coupled with change of trend indicators. For example, a stochastic declining following the appearance of a hangman in a Volatile Market.

The two basic rules:

1. Analyze the emergence of a candlestick in a price trend that precedes it. For example, a candlestick reversal pattern will not have the same impact in an upward or downward trend, as in a congestion phase.

2. Always wait for a confirmation from the next pattern. For example, the appearance of a candlestick reversal pattern in an upward movement indicates that a change of trend will likely occur. The next pattern should confirm the trend reversal.


What is Harami?

A "Harami" is a deceleration of momentum. It appears when a line with a small body holds within a larger body. This type of pattern is a strong indication that the trend may be reversing.

1. The Bullish Harami: is a downtrend negative-coloured (red or black) candlestick engulfing a smaller positive coloured candlestick (green or white), giving a signal of reversal in the downtrend. The smaller the second candlestick, the more likely the reversal.

2. The bearish Harami: may be formed from a combination of a large candlestick and a smaller candlestick. The smaller the second candlestick, the more likely the reversal. It is thought to be a strong sign that a trend is ending when a large (green or white) candlestick is followed by a small (red or black) candlestick.

Example of a bearish Harami: The trend for EURUSD on the 22nd May is bullish, with a high of 1.4051 and low at 1.3890. As the extremes of the day on 25 May 2009 are between the extremes of 1.4051 and 1.3890, a Harami is present. As it is placed at the top of a trend, it may signal a reversal:




Emman Xuereb

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