Learning to read the trends of investment trading, such as the stock market, is essential for anyone who works in jobs with regular trading or likes to trade securities. An excellent tool for figuring out the current trends in the securities market is using candlestick trading patterns. These patterns can help you know if now is the time to trade or not.
Harami Cross Patterns are candlestick trading patterns that depict the indecision of buyers in the current trend in the market. This means that the pattern shows whether the prices in the market might be about to go up or down. There are two different types of Harami Cross Patterns because indecision can be for either a downward trend or an upward trend.
In the remainder of this article, we’ll discuss the Harami Cross Pattern in greater detail, from the types of patterns that exist and how to identify and interpret them, to how to use them in trading.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Types of Harami Cross Candlestick Patterns
A trend in the market can either reverse from a low-cost market to a high-cost market or from a high-cost market to a low-cost market, but first investors look at the current indecision in the market. These two different trends can be indicated by a Bullish Harami Cross Pattern or a Bearish Harami Cross Pattern.
Bearish Harami Cross Pattern
A Bearish Harami Cross Pattern suggests to market buyers that the market might be about to experience a reversal in trend and start decreasing in price. To show this, a candlestick located higher up on the charts will be followed by a doji (cross). The first day is represented by the large and highly located larger candlestick while the doji represents the next day.
The doji is typically located within the parameters of the candlestick. The doji indicates that there was indecision with buyers the previous day, and the market might be starting a downward trend. The trend is either proven the next day and confirmed with a drop in price or is not and invalidated.
Bullish Harami Cross Pattern
A Bullish Harami Cross Pattern indicates that the prices of the market securities might go up the next day. Like a Bearish Cross Pattern, a Bullish Cross Pattern has a large candlestick followed by a doji. However, the candlestick of a Bullish Harami Cross Pattern will be located further down on the chart instead of higher up.
The doji still must fit within the parameters of the candlestick. While a Bearish Harami Cross Pattern suggests that the securities market might have a decrease in price soon, a Bullish Harami Cross Pattern takes the indecision in buyers from the previous day and determines that the market might experience an increase in price the next day. If an increase does not occur, then the pattern is considered invalid.
Harami Cross Pattern Interpretation
To understand a Harami Cross Pattern, it’s essential to understand how the candlestick model works. A candlestick is a big box, either black or white depending on how the market performed that day, with a line drawn through it to represent the range of prices for the day.
- A Bullish Cross Pattern usually has a candlestick with a black box, with the black box indicating the market closed lower than it opened.
- A Bearish Cross Pattern usually has a white boxed candlestick, indicating the market price closed at a higher price than when the market opened.
A doji, which looks like an enlarged cross, indicates a soft prediction of how the market will act the next day. This shows that the buyers had reached a place of indecision by closing time the day before. Most traders wait for the Harami trend to be confirmed before acting to buy or sell stocks. This confirmation comes in the form of a second candlestick replacing the doji; this means the trend is most likely to happen.
How to Trade Harami Cross Patterns in Candlestick Trading?
Because Harami Cross Patterns only represent indecision in buyers’ minds, it can be hard to trade securities on this pattern effectively. To effectively trade a Harami Cross Pattern, the trader must use the pattern in conjunction with another market reading method.
Strategy 1: Using Harami Cross Patterns with a Trailing Stop Loss
Since Harami Cross Patterns are not guaranteed to occur, using a stop loss is an excellent way to determine whether a trader buys market shares.
The Market Environment
The nature of a stop-loss system allows a buyer flexibility within the market. Any market environment is conducive to a stop-loss order, as the order only goes into effect when a designated price is reached.
Identify and Confirm Trading Opportunity
A stop-loss order will either order more or sell a chosen number of market shares when the market price of the market share hits a price you designate. Therefore, a stop-loss order won’t occur unless the market share’s price lowers or rises to the designated level. This confirms whether the market was entering a more expensive price trend or a decreasing price trend.
A trailing stop-loss order can set the buy or sell level at a percentage of the market share price increase or decrease.
Determine Stop Loss Levels
The price at which a stop loss is set is usually determined by the trader and the previous performance of the market share you are interested in buying. A market share that is known never to go higher than this price can be set up to sell shares when the said price is hit.
You can also use the market share opening price or closing price to determine how much of an increase or decrease you are comfortable with selling or buying then reserve the order with a trailing stop-loss order.
Execute and Manage Order
Placing a stop order is always an excellent accompaniment to a Harami Cross Hair since you won’t buy the market share if the Harami Cross Pattern trend proves to be inaccurate.
Strategy 2: Using a Harami Cross Pattern with a Risk/Reward Ratio
A risk/reward ratio can help you determine whether following a Harami Cross Pattern Indication is worth the risk it could incur.
Market Environment
A risk/reward ratio trading strategy is reliant on a market that has shown to follow predicted trends often as well as a market with little trend divergence and little need of correcting. The method also works better with market shares that are expected to make significant movements.
Identify and Confirm Trading Opportunity
A risk/reward ratio contrasts how much money you are putting into a market share compared to how much money you stand to gain if the market prediction turns out to be accurate. The calculation is usually done by comparing the amount of growth predicted by showing how much you will make on a dollar.
In this manner, a 1:6 ratio means that for every dollar you risk in the investment, you could potentially earn six dollars if the market prediction is followed. For this strategy, a higher discrepancy between the two numbers determines whether an investment is worth the risk. A 1:10 risk/reward ratio is much more worthy of pursuit than a 1:2 ratio.
Determining Trade Entry
For this method, trade entry can be made known at the opening of market share trading time, suggesting if following through on the investment would be wise or not.
Execute and Manage Order
Once you have determined that a risk is worth the potential reward of a definite trend, you must buy the stocks the day of. This method is a little riskier because you have bought the stocks even if the Harami Cross Pattern method proves to have been inaccurate. It is best to use this method on huge differences between ratio numbers and with only a little money on the first day.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
Harami Cross Patterns in Candlestick Trading can give a decent indication of a possible trend reversal in the future but rely on buyer chatter and is, therefore, not a reliable method to use for investing by itself.
While a doji might suggest that a market share might start decreasing in price, buyers can always change their minds, so it is best to use multiple methods for trading, such as stop losses or risk/reward analysis while attempting to follow the Cross Pattern Trade.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
Affiliate Disclosure: We participate in several affiliate programs and may be compensated if you make a purchase using our referral link, at no additional cost to you. You can, however, trust the integrity of our recommendation. Affiliate programs exist even for products that we are not recommending. We only choose to recommend you the products that we actually believe in.
Recent Posts
Exploring Social Trading: Community, Profit, and Collaboration
Have you ever wondered about the potential of social trading? Well, that curiosity led me on a fascinating journey of surveying over 1500 traders. The aim? To understand if being part of a trading...
Ah, wine investment! A tantalizing topic that piques the curiosity of many. A complex, yet alluring world where passions and profits intertwine. But, is it a good idea? In this article, we'll uncork...