What Is a Harami Cross?

What Is a Harami Cross?

Let me explain what a harami cross is. It's a Japanese candlestick pattern made up of a large candlestick that follows the current trend, followed by a small doji candlestick. The doji sits entirely within the body of that prior candlestick. This setup indicates the previous trend might be on the verge of reversing. You can see it as either bullish or bearish. The bullish one points to a potential upside reversal, and the bearish one suggests a downside reversal.

Understanding the Harami Cross

You need to know how the bullish harami cross forms after a downtrend. The first candlestick is a long down candle, usually black or red, showing sellers in control. Then comes the doji with a narrow range, opening above the previous close and closing near its open. This doji must be fully inside the real body of the prior candle.

That doji introduces indecision among sellers. Traders typically wait for the price to follow through upward in the next few candles for confirmation. Sometimes the price pauses after the doji before moving. A rise above the first candle's open strengthens the signal for higher prices.

For the bearish harami cross, it forms after an uptrend. The first is a long up candle, white or green, indicating buyer control. The doji follows, showing buyer indecision, and it must be contained within the prior candle's body.

If the price drops after this pattern, it confirms it. If prices keep rising, the bearish signal fails.

Harami Cross Enhancers

For a bullish harami cross, you might act on it right away, but many wait for confirmation via a higher price move. It carries more weight if it hits a major support level, increasing chances of a big upside move, especially without nearby resistance.

You can also check indicators like the RSI rising from oversold, or other signals confirming the upmove.

On the bearish side, wait for a lower price move to act. It's more significant near major resistance. An RSI dropping from overbought can confirm the bearish shift.

Trading the Harami Cross Pattern

Trading the harami cross isn't mandatory; some use it just as a reversal alert. If you're long and see a bearish one with prices dropping, consider taking profits. If short and a bullish one appears with rising prices, look to exit.

You could enter positions on the pattern. For a long on bullish, place a stop loss below the doji low or first candle low. Enter when price goes above the first candle's open.

For a short on bearish, stop loss above the doji high or first candle high. Enter when price drops below the first candle's open.

These patterns lack profit targets, so use trailing stops, Fibonacci extensions, retracements, or risk/reward ratios to exit.

Example of a Harami Cross

Take this chart of American Airlines Group Inc. (AAL) showing a bearish harami cross. The price was in a downtrend but flattened into a range. It rose to resistance and formed the pattern. Prices then moved lower, confirming it and offering a chance to exit longs or enter shorts. The decline lasted a couple weeks before reversing and breaking above resistance.