Candlestick Patterns – Harami
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Hi Lance,
is there difference between the harami cross and a doji, other then the shadows of the doji breaking the body of the prior candle?
The doji is a single-candle pattern. The harami cross is a two candle pattern, comprising a doji stuck within the body of the preceding candle. So the difference is in the mindset of those in a trade, who have sit through a stall in the directional movement, as the trend produces an inside bar. Sit in a trade which stalls and then breaks against your position. You’ll feel the difference. And as with all stalling or compressing action, there is potential for increased orderflow on the break (volatility contraction leads to volatility expansion). Noting of course that the effect here is likely small, being only a two-candle duration. Far more important than the pattern is where it’s occurring. Context is everything. Because you need others to trade to provide a sustained move. Context will tell you whether or not the orderflow from triggering the candlestick pattern should be sufficient to bring other traders into the market.
Thank you I got most of that. Unfortunately I’m not quite understanding the very last sentence of the reply, “Context will tell you whether or not the orderflow from triggering the candlestick pattern should be sufficient to bring other traders into the market.” Would you be willing to go into a little bit more detail in this? I do understand that all candle patterns such as this should only be paid attention to if they occur in proper setup areas near S/R, but I think I’m still missing the lesson here.
The influence of a 1,2 or 3 candle pattern in driving orderflow is small, limited maybe to the next few candles only. Don’t expect price to drive 100 ticks just because “OMG… it just broke a harami cross”. For sustained moves you want this pattern driven orderflow occurring in places where it might be sufficient to trigger NEW sources of orderflow. That is, it might create sufficient movement to convince other traders to enter, using different methods. For example, if the pattern occurs at S/R and you deem it sufficient to drive far enough to perhaps break the next swing high/low (bringing in breakout traders) or sufficiently far to cross MA’s (bringing in indicator traders) etc.
Ok that makes more sense now, thank you again.