Bullish Harami Candlestick: What It Is and How It Works?

Incorporating this strategy into your trading toolkit can enhance decision-making, leading to more informed and potentially profitable trades. Remember, while the Bullish Harami pattern can be a valuable indicator, it’s essential to consider it within the broader market context to make the most of its predictive power. Though both are potential trend reversal patterns, the bullish harami and bullish engulfing candlestick formations differ significantly in structure. One of the main advantages of the bullish harami pattern is the ease of spotting it on a price chart.

The second candle’s opening and closing prices must be contained within the first candle’s body. The bullish harami candlestick functions almost randomly with reversals taking a slight edge over continuations by 53% to 47%. That means you probably can’t guess the breakout direction withany accuracy. The frequency rank is 25, which means the candle pattern should be plentiful in a historical price series.

Harami Cross: Definition, Causes, Use in Trading, and Example

A bullish Harami occurs at the bottom of a downtrend when there is a large bearish red candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. A smaller body on the following Doji must close higher within the body of the previous day’s candle to form a bullish harami, indicating a larger possibility of a reversal. The first black arrow shows an increase of IBM and price interaction with the upper bollinger band. This time, we will combine the Harami candle chart pattern with an exponential moving average and Fibonacci levels.

A huge volume spike at the time of the formation of bearish harami patterns could provide an additional confirmation for a trader looking to short the market. The bearish harami pattern can provide a trader with an early sign of a potential reversal in the market but a trader relying solely on this pattern can end up making false trading decisions. This is why it is important to use this pattern with other additional technical tools.

1. The bullish harami is considered an accurate indicator of trend reversals when used along with other technical indicators.
2. A bullish harami is a candlestick chart pattern that typically signals a potential bullish reversal in the price of an asset.
3. This is when we sell Facebook short and begin to follow the price action.
4. You should consider whether you can afford to take the high risk of losing your money.
5. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
6. The stock opens the gap higher the next day.Those who are short on the stock begin to fear that it will rise in price as a result of the price increase.

Ready for the Next Trading Step?

Its reliability increases with other technical indicators, such as RSI and moving averages. Harami is a type of Japanese candlestick pattern represented by two bodies, the first of them, larger, with black or red body and the second one, white or green. Its name derives from the Japanese word that means “pregnant” because the graphic that shows resembles a pregnant woman. Generally, the Harami pattern candlestick shows a changing trend.1 Like other Japanese patterns it too can be bullish or bearish. Here is a chart below where the encircled candles depict a bullish harami pattern, but it is not.

Bullish Harami vs. Bullish Engulfing Pattern

The confirmation of trend reversal in a bullish harami pattern occurs in the third or fourth candlestick that follows the harami pattern. Investors studying for harami candlestick patterns should start by looking at periodic market performance in candlestick charts. A bullish harami relies on initial candles to indicate that a downward price trend is continuing and that a bearish market appears to be pushing the price lower. Yes, the bullish harami candlestick pattern is a bullish trend reversal indicator. The bullish harami candlestick signals trend reversals from a bearish trend to a bullish trend.

The price continued lower for a couple of weeks before reversing harami candle and then breaking above the resistance level. Be sure to read about these candle patterns and download our free cheat sheet. Although the stochastics are one of the faster oscillators, it might take forever until you match your candle pattern with an overbought/oversold signal. You should buy in the bearish market because it has been observed that the stock market has always gone up historically. You also gain the benefit of buying quality stocks at really cheap prices.

Spotting this pattern, particularly the green doji can be a key indicator for traders to consider initiating long positions, anticipating a forthcoming market upswing. Combining this candlestick pattern with indicators like moving averages or RSI can strengthen your trading strategy and improve your entry and exit points. The harami candlestick pattern will be combined with Bollinger bands in this trading method. The tall black candle speaks of a continued downward price trend but the next day, a white candle appears. Typically, traders don’t act on the pattern unless the price follows through to the upside within the next couple of candles.

1. Since the Harami is a reversal pattern, we need a way to measure the likelihood of successful signal to reduce the noise.
2. With optimal strategy, the balanced reward potential warrants inclusion when trading this pattern.
3. All the advantages primarily revolve around the ease of spotting and identifying the bullish harami candlestick.
4. For a bullish harami cross, some traders may act on the pattern as it forms, while others will wait for confirmation.
5. A bullish Harami pattern and a trendline break is a combination that could result in a buy signal.

While the harami represents a gradual shift through its two-candle sequence, the engulfing signals a forceful, singular takeover. Even though they indicate similar market psychology, the smaller contained harami, and larger engulfing candle denote distinct formations that compose their notable bullish reversals. Harami and Harami Cross Candlesticks can be used in Scanning the market.

The price breaks the yellow support in a bearish direction giving us the confidence to hold our short position. The further decrease in price then creates a bottom, marked with a green line. The double top that came in the form of a bearish engulfing candlestick gave us that added confirmation that we really did see a top of some sort. In case of a bearish harami, you should place a sell-stop slightly below the bigger candlestick. A long-legged doji forms when the price opens and closes at the same level. A gravestone doji forms when the price opens and closes at the lower end of the candle.

Sometimes the price may pause for a few candles after the doji, and then rise or fall. A rise above the open of the first candle helps confirm that the price may be heading higher. This long, full-bodied candle with little to no shadows demonstrates overwhelming buying pressure. This comprehensive guide is designed to demystify the intricacies of trading with Bullish Harami candles. We’ll walk you through the steps of spotting the harami formation and crafting effective tactics to turn this knowledge into profit. When you see a Bullish Harami pattern forming, check the MACD for a bullish crossover (where the MACD line crosses above the signal line).