Harami
A two-candle reversal signal where a small candle is cradled inside the prior session's large candle body, marking a potential pause or turn in trend.
Definition
A harami (from the Japanese word for "pregnant") is a two-candlestick pattern in which the second candle's real body is entirely contained within the real body of the first, larger candle. The pattern signals that the prevailing trend is losing momentum and a reversal or at minimum a consolidation may be imminent. It appears in two forms: the bullish harami (at the end of a downtrend, with a large bearish candle followed by a small bullish candle) and the bearish harami (at the end of an uptrend, with a large bullish candle followed by a small bearish candle). It is often compared to the engulfing pattern, which is its structural opposite. Traders frequently look for a doji as the second candle to form the stronger harami cross variant.
Why it matters
In Indian markets, candlestick patterns carry significant weight among retail and positional traders who rely on end-of-day chart analysis for NSE equity and index trades. The harami is valued because it is easy to identify and appears frequently across daily and weekly timeframes on Nifty, Bank Nifty, and large-cap stocks. Its psychological interpretation is intuitive: the small second candle shows that the market opened and closed within the previous session's range, reflecting indecision and a drying up of the momentum that drove the prior large candle.
In derivatives trading, a bearish harami forming near a key resistance level — for instance at a strike price with heavy call open interest — can reinforce a short case. Conversely, a bullish harami near a major support or a put-heavy strike gives option writers added confidence. The pattern is typically treated as a warning signal requiring one more confirmation candle rather than an immediate entry trigger.
How it works
For a valid harami, three conditions must hold: (1) the prior trend must be established — a series of lower lows for bullish harami, or higher highs for bearish harami; (2) the first candle must have a large real body consistent with the prevailing trend direction; and (3) the second candle's open and close must both fall within the range of the first candle's open and close. Wicks of the second candle may extend beyond, but the body must be contained. Traders await a confirming third candle that moves in the reversal direction before entering a trade, and they set stop-losses just beyond the high or low of the first (large) candle.
Example
Suppose a Nifty 50 futures daily chart shows five consecutive red candles pushing price from roughly 23,500 down to 23,050. On the sixth day, a large bearish candle closes near 22,980. On the seventh day, the contract opens at 22,960 and closes at 23,010 — a small bullish body entirely inside the previous day's bearish body. This is a bullish harami. A cautious trader waits for the eighth day: if that session closes above 23,010, they enter a long futures position with a stop-loss below 22,950 (the first candle's close), targeting a bounce to the nearest resistance around 23,200.
Combine harami signals with open interest
Check where put and call OI is concentrated to validate harami reversals in real time.