The Harami cross is a variant of Harami where the second candlestick is a Doji.
The classic Harami is less powerful than the stars or the hammer but the Harami cross is just as powerful as these major structures. It can be both a structural downward or upward reversal.
The elements that characterize it are:
- The Harami should appear after a bullish or bearish trend.
- The first candlestick must have a long body.
The body of the 2nd candlestick should be a Doji (or nearly so) included in the body of first candlestick (but not necessarily the shadows).
In the case of a bearish reversal, as in this example, such a structure is formed when, following an upward trend, after a day of advances, rates open down from the close of the previous day and oscillate around the equilibrium to finally close near the opening price within the body of the Japanese candlestick of the previous day. This shows a weakness of the current trend and a high uncertainty about future market developments. The outcome of this structure will determine the result of price movements. Here, they open in the next bearish gap, then fell sharply throughout the session. The Harami structure can thus be validated.
It should be noted that one has to keep some subjectivity in technical analysis and a body as small as that of the 2nd candlestick (as in example) might be considered a Doji as it is small.
In a Harami, the smaller the body of the 2nd candlestick, compared to that of first, and more significant the structure. The ideal case is the Harami cross which is much more powerful than the simple Harami. In fact, the Doji reinforces signs uncertainty in the market.
The Harami cross can easily give rise to a position that could be taken after confirmation of the candlestick by the following figure. The level of invalidation may be placed under the new low formed at, or above, the highest in the direction of the figure.
All these observations are similar to a Harami cross occurring after a downtrend.