The Harami structure, also called “pregnant woman”, is a turn-up figure composed of two candlesticks which are less powerful than the hammer and the hanged man, but it is nevertheless not be overlooked.
It marks a pauses in the current trend, either upward or downward, and can then lead to a reversal of the trend at a trading range or a reversal. The 1st candlestick is considered a pregnant women, the 2nd being a baby.
The elements that characterize it are:
- The Harami should appear after a trend which is either bullish or bearish.
- The 1st candlestick must have a long body.
- The body of the 2nd candlestick must be fully included in the body of the 1st candlestick (but not necessarily the shadows).
- Both candlesticks are not necessarily of opposite colors.
In the case of a bearish reversal, as in this example, such a structure is formed when, following an upward trend (very bullish in this example), after a day of advanced rates, open down compared to the previous day’s close and oscillates around an equilibrium to finally close within the body of the Japanese candlestick from the previous day. This shows a weakness of the current trend. The outcome of this structure will determine the result of price movements. Here, they open down the next day, climb quite high to later finish at the bottom. The Harami structure can thus be validated.
Note that we have here a classic case of two bodies of opposite colors but it is not essential for the structure.
Although the Harami is not a very powerful figure of reversal, it is still relevant, because it represents an obstacle to the trend and other technical signs will come in confirmation of Harami. Here, the following Japanese candlestick is hanged, although its lower shadow is a bit short, this reinforces the warning of the Harami.
The smaller the body of the 2nd Japanese candlestick, compared to that of the 1st, the more the structure will be significant, the ideal case being a Harami cross. In fact, a small body strengthens the sign of uncertainty in the market then.
The Harami, by its reduced power, will not necessarily lead to a position but will be a major weakness of the trend. If, however, other signs were in technical confirmation (support, resistance, etc.) a position could be initiated after confirmation of the figure by the following Japanese candlestick.
All these observations are the same for a Harami arising out of a downtrend.