Harami (inside candle)

In practice

A large green candle is followed by a small red candle whose body sits entirely within the green candle's range. The strong push has paused, and the smaller candle shows neither buyers nor sellers could extend beyond the prior period — a contraction that often precedes a break in either direction.

Why it matters for traders

A harami marks the trend catching its breath, and contraction tends to precede expansion, so traders watch it as a setup for the next directional break. Because it does not itself predict direction, it is best used as a trigger candle: wait for the candle after the harami to break its range and confirm the next leg.

Common pitfall

The pitfall is assuming a harami means reversal and entering immediately. A harami signals contraction — a pause — not direction; the break can go either way. Trading it as a reversal gets you in before the market has chosen. The correct use is as a setup: wait for the candle after the harami to break its range, ideally with your other confluence, and only then enter with a stop beyond the harami.

Lessons that use this term

• Three Inside Up and Three Inside Down

  A harami plus a confirming candle — the pattern with confirmation built in.

Related terms