Key Takeaways
- Two-candle reversal pattern with a Doji second candle.
- Signals market indecision and potential trend reversal.
- Stronger reversal indicator than a standard harami.
- Requires confirmation from the next candle to trade.
What is Harami Cross?
A harami cross is a two-candlestick reversal pattern used in technical analysis, consisting of a large candlestick followed by a Doji, where the open and close prices are nearly identical. This pattern signals market indecision and potential trend reversal, making it a valuable tool for traders including daytraders.
The term "harami" means "pregnant" in Japanese, reflecting how the smaller Doji candle is contained within the body of the larger first candle, indicating a shift in momentum.
Key Characteristics
The harami cross pattern has distinct features that help identify possible reversals in price trends:
- Two Candlesticks: A large first candle followed by a Doji representing indecision.
- Positioning: The Doji is fully contained within the prior candle’s real body.
- Trend Context: Appears after sustained bullish or bearish moves, indicating a potential reversal.
- Stronger Signal: The presence of a Doji makes it more reliable than a standard harami pattern.
- Market Psychology: Reflects a balance between buyers and sellers, often near key support or resistance levels.
How It Works
The harami cross works by highlighting a loss of trend momentum. The first candle shows strong buying or selling pressure, while the Doji reveals hesitation and uncertainty among traders. This shift signals that the prevailing trend may be weakening.
For effective trading, confirmation is essential: after a bullish harami cross, you look for a price increase; after a bearish pattern, a price decline confirms the reversal. Traders often combine this with indicators like the Ichimoku Cloud to validate trade setups and define entry or exit points.
Examples and Use Cases
Harami cross patterns appear in various markets and can guide trading decisions across sectors:
- Airlines: Stocks like Delta and American Airlines often show harami crosses during volatile periods, signaling potential shifts in trend direction.
- Growth Stocks: When trading high-momentum stocks highlighted in the best growth stocks guide, the harami cross can warn of impending reversals.
- ETFs: Exchange-traded funds featured in the best ETFs for beginners may also exhibit this pattern, helping investors fine-tune timing for entries or exits.
Important Considerations
While the harami cross is a strong reversal indicator, it is not foolproof. You should always seek confirmation through subsequent price action or additional technical tools to avoid false signals. Risk management strategies are crucial to protect against unexpected market moves.
Context matters: the pattern gains significance near major support or resistance and when paired with volume analysis or momentum indicators. Combining the harami cross with other tools improves your chance of making informed decisions in dynamic markets.
Final Words
The harami cross signals a potential market reversal by highlighting a shift from strong momentum to indecision. Monitor price action closely after this pattern to confirm the trend change before adjusting your positions. Consider integrating it with other indicators to improve decision accuracy.
Frequently Asked Questions
Harami Cross is a two-candlestick reversal pattern in technical analysis, featuring a large candlestick followed by a Doji candle. This pattern signals market indecision and often indicates a potential trend reversal.
Unlike a regular Harami, which has a smaller real body for the second candle, a Harami Cross specifically uses a Doji as the second candle. This Doji signals greater market indecision, making the Harami Cross a stronger reversal indicator.
The pattern forms when strong buying or selling momentum from the first large candle is met with market indecision represented by the Doji. This shift suggests the current trend may be losing strength and a reversal could be imminent.
There are bullish and bearish Harami Cross patterns. A bullish one appears after a downtrend with a large bearish candle followed by a Doji, indicating a potential upward reversal. A bearish one appears after an uptrend with a large bullish candle followed by a Doji, signaling a possible downward reversal.
Traders wait for confirmation from the next candle after the Harami Cross forms. For a bullish pattern, confirmation is when the price moves higher, while for a bearish pattern, confirmation occurs when the price moves lower.
For a bullish Harami Cross, traders typically enter when the price moves above the open of the first candle. The stop-loss is usually placed below the low of the Doji or below the low of the first candlestick.
In bearish Harami Cross trades, stop-loss orders are generally set above the high of the Doji or above the high of the first large bullish candle to limit potential losses if the reversal fails.
