Bullish and Bearish Harami — two-candle reversal pattern

After a run of strong bearish candles, a tiny one appears, tucked entirely inside the previous body, and the market seems to hold its breath. This is the harami — a Japanese pattern whose name means "pregnant", because the small candle sits in the body of the large one like a baby in the womb. It does not shout "reversal"; it quietly suggests the dominant side is losing its grip.

What exactly is the harami pattern?

The harami is a two-candle formation. The first has a large body in line with the trend and shows the market still racing one way. The second is much smaller and, crucially, its body sits entirely inside the first. That contrast is the heart of the pattern: after a decisive move comes a session in which neither side imposes a direction.

There are two versions. A bullish harami forms after a downtrend: a large bearish candle, then a small candle hidden inside its body. A bearish harami is the mirror image after an uptrend. Either way the message is the same — the dominance of one side has just been shaken.

What is really happening in participants' minds?

Behind every candle there is psychology, and the harami tells a specific story. The large first candle is the triumph of the side in control: in a downtrend, sellers push price ever lower and nothing seems able to stop them. Then the second session arrives and that drive vanishes — price opens and closes in a narrow range inside the previous body. Sellers can no longer deepen the decline, and buyers start to appear.

That is why the harami is first of all a signal of fading momentum, not a confirmed reversal. Sometimes the hesitation turns into a full reversal, sometimes into only a brief pause before the trend continues — so we never treat it as a standalone trigger for a trade.

What is the harami cross and why can it be stronger?

A special variant is the harami cross, in which the second candle is a doji — a candle with almost no body. A doji forms when the open and close are practically the same, a sign of perfect balance between buyers and sellers, so the hesitation is even clearer than in the classic version.

Many traders therefore regard the harami cross as the stronger signal: the more complete the indecision of the second candle, the more likely the trend has run out of fuel. It is worth telling the doji apart from the related spinning top — the guide to spinning top and doji candles covers both.

Why is the harami weaker than the engulfing pattern?

The harami and the engulfing pattern are close cousins with a reversed candle order. In a harami the large candle comes first, in line with the trend, and the small candle merely signals hesitation. In the bullish and bearish engulfing pattern it is the other way round: the second candle has a powerful body that completely swallows the first.

That difference matters in practice. The engulfing is a statement of strength: the opposite side has not only halted the move but reversed it. The harami is doubt only just being born, so it is almost always worth pairing with a further signal.

"The more confirming signals you get from a candle, the more reliable the reversal it is predicting becomes." — Steve Nison, Japanese Candlestick Charting Techniques, New York Institute of Finance, 2001

What does the harami look like in an example?

Let us walk through a hypothetical bullish harami on EUR/USD with illustrative numbers. After several falling sessions, a large bearish candle runs from 1.0900 down to 1.0800. The next candle opens at 1.0830 and closes at 1.0860 — a small bullish candle tucked entirely inside the first. That is a complete harami.

But this harami is still only a warning light, not an instruction to open a position. The trade depends on what comes next.

Where do you place the entry, stop-loss and target?

Because the harami is a weak signal, a sensible entry comes only once price breaks the far end of the first candle toward the expected reversal: above its high for a bullish harami, below its low for a bearish one. We use the first, large candle because only breaking its level shows the reversing side genuinely taking control.

The stop-loss goes on the opposite side of the setup: below the low of candle 1 for a bullish harami and above its high for a bearish one. If price returns there, the premise of the pattern no longer holds. Set the target using prior market structure — the nearest support or resistance, or the Fibonacci retracements. A sensible reward-to-risk ratio starts at roughly two to one; if the nearest barrier sits right next to your stop, skip the setup.

How do you confirm a harami and avoid the trap?

The simplest route is to wait for a third candle. If it closes decisively toward the reversal, the harami turns into the stronger Three Inside Up or Down setup, that is a harami with confirmation — at the cost of a slightly worse entry, but with fewer false signals.

The second layer of confirmation is an independent tool. Many traders check whether the market is oversold or overbought when the harami appears — reading up on how to read the RSI indicator helps here. The most common mistakes are mundane: accepting a candle 2 whose body extends beyond candle 1, trading with no existing trend, and entering before any confirmation.

What to do tomorrow

1. Open a daily or four-hour chart and find at least three historical haramis, checking each time that the second candle's body sat entirely inside the first — that is the only condition separating a true harami from a random small candle in a trend.
2. Before you treat a harami as a signal, attach a confirmation condition: either wait for a third candle closing toward the reversal, or check for an oversold or overbought RSI reading. The bare harami is weak, and entering without it is a simple route to a string of losses.
3. Set the stop-loss on the opposite side of the first, large candle before you enter, then measure the distance to the nearest support or resistance to check the reward-to-risk ratio is at least two to one — if not, deliberately skip the setup.
4. Pay particular attention to the harami cross, where the second candle is a doji, and record in your journal whether this variant works better for you than the classic harami on the markets you actually trade.
5. Read the candlestick chapters in the technical analysis section at ForexMechanics.com to see the harami alongside other reversal patterns, then compare its logic with the stronger engulfing pattern before trading it live.