Bullish & Bearish Harami Patterns

Below, we are going to show you how to confirm the bullish harami pattern and find good entry and exit levels by using the RSI, MACD, and Fibonacci ratios. In this article, we’ll explain what is the bullish harami pattern, what are its characteristics, and how to identify and trade this charting pattern. The Bullish Harami consists of two candlesticks and hints at a bullish reversal in the market.

A Bullish Harami Candle pattern indicates a possible reversal from bearish to bullish momentum. The confirming candle is used as a tool to tell traders if the smaller trailing gives life to a reversal or follows the trend with the starting candle. The popularity of the Harami pattern and other candlestick patterns is due to the ability to catch a reversal at the most opportune time with tight risk. This will allow traders to have very favorable risk-reward ratios. The Bullish Harami candle pattern is a reversal pattern looking at the bottom of a downtrend. It consists of a bearish candle with a large body and a bullish candle with a small body contained within the body of the previous candle.

Advantages and Disadvantages of the Harami Cross Technique

In this article, we’re going to have a closer look at the bullish harami pattern. We’re going to cover its meaning, how you can improve its accuracy, and provide some examples of trading strategies that rely on the bullish harami pattern. When traders interpret the Harami candles, context is vitally important. Analysing the previous charting pattern (trends) as well as price action will give the trader greater insight and ability to forecast the implications of the Harami pattern. Without context, the Harami is just three candles which are practically insignificant.

• The movement is more straightforward to spot for beginner traders than many alternatives, providing a more attractive risk-reward ratio for many of its users.
• As the trend reversed put a stop loss at the bottom of the bullish harami.
• Bullish Harami Candlestick pattern is more reliable for day and swing traders.
• It is important to note that technically the second candle will gap inside the first candle.

In other words, we’ll exit the trade as soon as the price crosses the moving average from below. However, when the market opens the next day, it does so with a positive gap. The bears seem to have lost the lead overnight, and given the bulls a chance to revert the trend. The opposite of the Bullish Harami is the Bearish Harami and is found at the bottom of a downtrend.

What Is a Harami Candlestick Pattern?

Day 2 showed a bearish candlestick which made the bearish Harami look even more bearish. The Harami Candlestick Pattern is considered a trend reversal pattern that can either be bullish or bearish, depending on the direction of the price action. A bullish harami is a basic candlestick chart pattern indicating that a bearish trend in an asset or market may be reversing.

Without this context, there’s always the chance a harami could be false. The risk-averse will initiate the trade the day near the close of the day after P2, provided it is a blue candle day, which in this case is. Again, the most important aspect of the bullish Harami is that prices gapped up on Day 2 and the price was held up and unable to move lower back to the bearish close of Day 1. The most important aspect of the bearish Harami is that prices gapped down on Day 2 and were unable to move higher back to the close of Day 1. To be included in a Candlestick Pattern list, the stock must have traded today, with a current price between $2 and $10,000 and with a 20-day average volume greater than 10,000. Unlock our free video lessons and you will learn the exact chart patterns you need to know to find opportunities in the markets.

How to Trade The Bullish Harami Pattern

One of the most popular pattern groups are the Japanese candlestick patterns, of which the Harami formation is apart of. This article is a full guide to understanding and trading the Harami candlestick pattern. As with any trading analysis/technique, the harami cross technique comes with many advantages and disadvantages. Some benefits of the harami cross strategy include attractive entry levels for investments as the trends potentially reverse upwards. The movement is more straightforward to spot for beginner traders than many alternatives, providing a more attractive risk-reward ratio for many of its users. Using Fibonacci retracement levels in combination with a bullish harami pattern as a trading strategy could be tricky.

You’ll have to identify the previous highs and lows of the previous trend to correctly draw Fibonacci levels and occasionally, you might even have to change a timeframe. Now, if you know these tendencies you could take those into account in your analysis. For example, a bullish harami that’s formed on a day that’s extra bullish might not be as accurate as one forming on a bearish day. The positive gap and bullish candle could just have been the result of the extra bullish sentiment of that period, and just be a short pullback, rather than a reversal of the trend. Harami candles are a type of candlestick pattern that can be used to predict future price movements in the market.

How to trade the Bullish Harami Candlestick Pattern

Forex Harami patterns like every other pattern will never give you a 100% success rate. Therefore, you should secure every Harami trade with a Stop Loss order for limiting the potential loss. If the price is trending in a certain direction, a Harami pattern is an indication that the trend is probably exhausted and we might be seeing a reversal soon. However, they are not the same, and engulfing patterns are more potent. The lines above and below, known as shadows, tails, or wicks, represent the high and low price ranges within a specified time period.

• In a bullish harami, both candles can be green however, the first candle must be green.
• If it is about a bearish Harami setup, then you should place your Stop Loss order above the upper candlewick of the first candle – a bullish one in this case.
• When traders interpret the Harami candles, context is vitally important.
• The colour of the Doji candle (black, green, red) is not of too much importance because the Doji itself, appearing near the bottom of a downtrend, provides the bullish signal.
• Investors seeing this bullish harami may be encouraged by this diagram, as it can signal a reversal in the market.
• Candle patterns that appear on the Intraday page and the Weekly page are stronger indicators of the candlestick pattern.

At the bottom of the chart, we have the Stochastic Oscillator attached. Even though there was not any prominent news or event (I googled), there were enough bullish signals. As you see, the market retraced up almost 100% of the previous down move. One should only trade bullish harami candlestick pattern the haramis, which form when the price touches a level of the upper or lower Bollinger bands. In this trading strategy, we will combine the harami with Bollinger bands. The high or low of a Harami cross setup provides resistance or support for any further price moves.

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The following bullish candle has a small body and short lower and upper wicks. Eventually, the trend reversal is confirmed and the price changes direction. The only difference is that the bearish harami pattern appears at the end of an uptrend and has the opposite outcome that the bullish harami setup. The Bullish Harami candle pattern is a reversal pattern appearing at the bottom of a downtrend. It consists of a bearish candle with a large body, followed by a bullish candle with a small body enclosed within the body of the prior candle. As a sign of changing momentum, the small bullish candle ‘gaps’ up to open near the mid-range of the previous candle.