Harami pattern: the inside candle, harami cross and how to read it

A harami is a two-candle pattern in which a small candle sits entirely within the body of the large candle before it. The word means "pregnant" in Japanese: the first candle is the mother, the second the child inside it. Where an engulfing pattern shows a sudden takeover, the harami shows the opposite: a sharp loss of momentum. That makes it a pause signal first and a reversal signal only if more evidence follows.

The definition

Bullish harami (after a decline):

1. A large bearish candle.
2. A small candle, usually bullish, whose body lies completely inside the first candle's body.

Bearish harami (after a rally):

1. A large bullish candle.
2. A small candle, usually bearish, whose body lies inside the first body.

The colour of the second candle matters less than its size and position. What defines the pattern is that the market, after a strong period, could not even reach the edges of that period's body. The harami glossary entry has a short definition.

The harami cross

When the second candle is a doji, open and close nearly equal, the pattern is called a harami cross. Some traders consider it a stronger sign of stalling, because the second period ended in complete indecision. Stronger stalling is still stalling. It says the previous move has paused, not that it will reverse.

Harami and the inside bar

Harami is close to a pattern that bar-chart traders call an inside bar, but there is a difference:

Every inside bar where the bodies also nest is a harami, but a harami can have wicks that stick out beyond the first candle's range and still qualify. Inside-bar traders often wait for price to break the first candle's high or low and follow whichever side breaks. That is a useful mindset for the harami too: the pattern describes compression, and compression can resolve in either direction.

A worked example

EUR/JPY on M15 rallies, and the last candle is a strong bullish one: opens 162.200, closes 162.500. It ends just under a resistance level at 162.550.

The next candle opens 162.470, wanders between 162.430 and 162.520, and closes 162.450. Its body (162.470 to 162.450) sits inside the previous body (162.200 to 162.500). That is a bearish harami just below resistance.

A cautious reading: the rally has paused at a level. To treat it as a reversal, a trader would want to see price close below the first candle's midpoint around 162.350, or at least below the harami's low. If the next candle instead closes above 162.520 and breaks resistance, the harami was simply a breather before continuation.

Why harami is weak on its own

• A small candle after a big one is extremely common. Large candles are often followed by smaller ones simply because volatility comes in bursts.
• The pattern does not show the other side taking control, only the trend side losing pace.
• In strong trends, harami patterns appear repeatedly as brief consolidations.

This is why harami is usually combined with location, such as a clear level, and with a confirmation candle, or read through an indicator that shows momentum fading. The article on combining indicators discusses how to add evidence without adding redundant tools.

Short expiries and OTC

On S5–M1 charts, a small candle inside a larger one occurs constantly. For short expiries, the harami is mostly a sign that the market has gone quiet for a moment, which also means the next few seconds may be close to random. Many traders prefer to identify it on M5 or M15 near meaningful levels. The article on engulfing patterns covers the opposite, expansion-type pattern.

On Sky Trade's OTC instruments, prices are generated by Sky Trade's server and do not follow any real market. The model makes the next move unpredictable, so a harami there is a quiet candle after a lively one, with no implication for direction.

How to use it in the Sky Trade terminal

Use the Candles chart type and draw a rectangle around the first candle's body, so you can see whether the second body stays inside it and which side eventually breaks. Wait for the second candle to close before calling the pattern.