The Harami Cross is a reliable pattern of price reversal
Today we are going to grieve about a pattern that has been used by traders as a signal of a high probability of a change in the direction of price movement. It’s a harami cross. This pattern is based on a dodge candle. I already told you about it in one of the blog articles.
How the cross of harami is formed
A it happens as follows. A dodge appears on the downward movement after a strong bearish candle (with a large body). And his body must be absorbed by the body of the previous candle. Let me remind you that a doji is a candle that has a very small body or no body at all (the opening price is equal to the closing price). What happens in the market in such a situation? Bear forces have begun to weaken, and the bulls are trying to take the lead. Dodge is a testament to their struggle, which does not bring victory to either of the two groups of traders.
Based on the ascending movement, the formation of a cross of harami follows the same pattern: after a strong bull candlestick, a dodge appears whose body is within the body range of the previous candlestick.
If all of the above is presented as a scheme, it will look like this:
Of course, the ideal variant of this pattern is when the dodge is completely absorbed by the previous candle, i.e. not only the body but also the shadow. However, in the real market such a combination, if you can find it, is very rare.
And now let’s see an example of a pattern on the price chart:
As we can see, on the descending movement after the “bearish” candlestick there appeared a doji candlestick, the body of which is within the range of the body of the previous candlestick. After that, the direction of price movement changed to the opposite, i.e. to the uptrend.
How to use the crosshairs in trading
There are three options for this. Fans of aggressive trading, which is always accompanied by increased risks, can open a deal immediately after the formation of a pattern, that is, at the opening of the next candlestick after the dodge.
But I prefer the other two. You can place a pending order at the minimum/maximum dodge or previous candlestick.
In my example, the entry points might look like this:
What concerns the stop-loss, it is recommended to set it a few points higher/lower than the pattern extremum.
Candlestick patterns give high quality signals on higher timeframes: from 4 hours and higher. Cross Harami is no exception.
In order to open a trade only on the basis of the fact that this pattern has been formed on the price chart. We need to find a filter to confirm the signal. This may be one of the indicators of technical analysis. Wouldn’t hurt to see the senior TF, too. Perhaps there’s also one of the reversal figures, which will increase the signal of the cross harami.