What is a Harami cross pattern? Imagine you’re playing with toy blocks. You stack a big block on the bottom and then place a tiny block right on top of it. The small block doesn’t stick out beyond the big one. This is similar to a Harami Cross in trading.

A Harami Cross is a special pattern on a chart that helps traders guess if the market might change direction. The name “Harami” is a Japanese word that means “pregnant,” which describes how the small candlestick is nestled inside the larger one.

How Does It Look?

1. Big Candle: First, there’s a big candlestick that shows a strong move in one direction—up or down.
2. Tiny Doji Candle: Next, a tiny candlestick called a Doji forms. This Doji has a very small body, meaning the price didn’t move much between when it opened and closed.

When and Where to Find It

• After a Trend: You usually see a Harami Cross after the market has been moving strongly in one direction.
• Big Candle First: The first candlestick should be big, showing the strength of the trend.
• Tiny Doji Second: The second one, the Doji, should be tiny and sit completely inside the first one.

This pattern suggests that the market might be getting ready to change direction. It’s like when you’re playing a game, and suddenly, everyone pauses and doesn’t move—it might mean something new is about to happen.

Why is the Harami Cross Important?

• Bullish Signal: If a Harami Cross appears after the market has been going down, it might mean that the market is about to go up. The tiny Doji shows that people are starting to doubt the downward trend.
• Bearish Signal: If it shows up after the market has been going up, it might mean the market is going to start going down. The tiny Doji indicates that buying is slowing down.

How to Trade with the Harami Cross

1. Entry Points: Traders often start buying or selling when the price moves past the high or low of the Doji. For a potential increase, they buy when the price is above the Doji; for a potential decrease, they sell when the price is below it.
2. Exit Points: Traders decide when to finish their trade by looking at previous price levels where the market might have stopped moving before. They might also use something called a trailing stop to protect their gains if the market goes their way.
3. Risk Management: Traders should use stop-loss orders to limit potential losses. For example, if they are buying, they place a stop-loss just below the Doji to prevent losing too much money if things don’t go as planned.

Real Market Examples

Looking at past charts where the Harami Cross appeared can help us understand how well it works. For instance, if a Harami Cross showed up after a big drop, and the market then went up, traders who noticed this pattern might have made a good profit.

Limitations and Things to Keep in Mind

• False Signals: Sometimes, the Harami Cross might not be accurate, especially in markets that are very unpredictable or have low trading activity.
• Confirmation Needed: It’s smart to check other indicators or do more analysis before making a trade based only on the Harami Cross pattern.

In summary, the Harami Cross is a pattern that can hint at a change in market direction. It’s like seeing a pause in a game, which might mean something new is coming. But remember, it’s always a good idea to use other tools and strategies to make sure your trades are well-informed.