The Harami candle has been used for centuries by traders and investors alike to help gauge whether or not a trend is likely to continue. During the Edo period in Japan, when trading was becoming increasingly popular, traders began to use the Harami pattern as an indicator of future buying or selling opportunities. Today, the Harami is used by technical analysts across all markets to identify a potential reversal in trend. It is also used to confirm an existing trend or to generate trading signals. The bullish harami is a two-candle pattern that typically appears during a downtrend and signals a potential bullish reversal.
Multiple trading accounts can be set up under one institutional entity, each with separate users, balances, positions and permissions. When paired with margin trading and derivatives, trading accounts effectively manage risk by allowing traders to segregate funds across multiple trading strategies or digital assets. The Harami candlestick pattern is a multiple candlestick pattern that involves two candles.
What Is the Ideal Time to Trade Using the Bullish Harami Pattern?
The next progression you can make is to analyze the bullish harami candlestick pattern in conjunction with key structural levels on your candlestick charts. To illustrate, let’s use the same chart from our first example but with identified structural levels. The bullish harami is a candlestick reversal formation that typically appears at the end of a downtrend or a retracement of a bearish trend that indicates bullish momentum. The pattern consists of a large bearish candle, which precedes a smaller bullish candle.
The Technicals
Our research shows that the Bullish Harami Cross is a signal for a positive market move. When spotting a Bullish Harami Cross, there should be a downtrend and a bearish candle encompassing a smaller bullish candle with a long wick, ideally a Doji or Spinning Top. When identifying a Bullish Harami, there should be a prevailing downtrend and a bearish candle encompassing a smaller bullish candle. The bullish harami can be a useful pattern in the right context, but it has its strengths and weaknesses. A bullish engulfing pattern has a small bearish candle followed by a larger bullish one that completely engulfs it. A harami that forms on rising bullish volume on the second candle, can suggest stronger buying interest.
Using Bullish Harami with Other Technical Indicators
- While both patterns are valuable for spotting trend reversals, the Bullish Engulfing pattern is generally considered a more decisive and reliable bullish signal.
- A 55.3% win rate means that trading a Bullish Harami Cross long will net you an average of 0.58% profit per trade if you sell after ten days.
- Traders typically wait for bullish confirmation before acting, but the twin lows create a compelling support level.
After the price broke out, it became a rising wedge pattern, followed by a falling wedge. Bullish harami candlesticks can be a part of a larger pattern, such as symmetrical triangle patterns. Smaller 2-day patterns, such as this, may not always form a significant reversal. Doji candlesticks can form after the initial pattern, sometimes creating confusion.
- The reliability and accuracy of the bullish harami pattern are not dependable when it is used in isolation as there are chances of false positives.
- Using indicators like MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index) can help confirm the validity of a bullish harami pattern.
- Pattern trading is one of the key concepts explored in WR Trading’s excellent mentorship program, which is designed to take traders to the next level.
- However, unlike the standard bullish harami where the second candle is contained within the first candle, the tweezer bottom pattern consists of two candles with identical lows.
- It is also used to confirm an existing trend or to generate trading signals.
- However, you should always corroborate its appearance with other technical indicators before making a trading decision.
The second candle gaps higher on the next day’s open and prints a small candle contained inside the first candle. A trader would wait for confirmation of a continued rally before enter the position. Immediately, you can see that we now have a better understanding of the overall price context.
Understanding the Market Sentiment Behind the Bullish Harami Pattern
Cited in long-standing Japanese candlestick literature as “matching lows,” Tweezer Bottom has been used for centuries to signal potential bottoms. Tweezer Bottom is a two-candle pattern where both candles share nearly identical lows. Bullish Harami comprises a small bullish candle entirely within the prior larger bearish body. Bulkowski estimates about a 60% success rate for Inverted Hammer reversals with confirmation. While additional sources are sparse, that aligns with similar single-candle reversal statistics.
A Bullish Harami Cross forms when a small doji candlestick appears within the range of a previous long bearish candlestick after a significant price drop. The pattern suggests that sellers may be losing strength, meaning a potential shift to the bullish sentiment, often seen as a signal for opening long trades. In essence, candlestick chart patterns are a way of understanding the ongoing battle between buyers and sellers.
The bullish harami pattern can give false positive signals sometimes which could lead to losses if not used along with other technical indicators. Other advantages of the bullish harami pattern include its ability to combine well with simple momentum-based technical indicators such as the MACD and the RSI. The bullish harami is also a pattern that frequently appears in price charts, making it easier to spot bullish harami candle them. The third main advantage of the bullish harami pattern is its ability to work well with different kinds of securities such as stocks, forex, indices etc.
The belt hold harami carries more weight than a hidden harami because it shows more decisive buyer behavior. The harami cross, while indicating indecision, often leads to explosive moves once that indecision resolves. Understanding these nuances allows you to adjust your position sizing and risk management accordingly.
C. Trading Bullish Harami with Fibonacci Retracements
The bearish sentiment of the first day is countered by the bullish sentiment of the second day, suggesting a possible trend reversal. A Bullish Harami pattern is a two-candlestick chart pattern that signifies the end of a bearish trend and the potential onset of a bullish trend. The first candlestick will often be a bearish bar, indicating that the market has dropped significantly during that period.
Alternatives To The Bullish Harami Pattern
This pattern forms when bullish momentum overwhelms prior selling, closing well above the previous candle’s body. Traders see the upper shadow as evidence of rejection of lower prices and anticipation of a reversal. It often functions as a warning shot—confirmation is critical before trading. According to Bulkowski’s research, the Dragonfly Doji has a reversal success rate of around 55%.
The bullish harami candlestick signals trend reversals from a bearish trend to a bullish trend. The image above shows the stock price chart of Godrej Industries Ltd. The price chart shows an initial downtrend with the prices declining. A long bearish candlestick forms at the end of the bearish downtrend.
Note that the line across the top of the previous high formed the top of the cup of a cup and handle. Using technical analysis in conjunction with patterns is helpful in gauging moves.
Traders typically wait for bullish confirmation before acting, but the twin lows create a compelling support level. It forms as sellers lose strength and price action contracts, with buyers gently pushing but not overtaking. Studies find Bullish Engulfing has about a 55% success rate with modest average profits over short holding periods. Other tests show 60–70% success when confirmed with volume and context, while academic research has placed its effectiveness closer to 65%.
Watch closely if the Bullish Harami forms near the 38.2%, 50%, or 61.8% retracement levels — these are the most commonly respected zones. Ideally, the Doji or small-bodied candle of the Harami pattern should align with one of these levels, which reinforces the idea of market defending that zone. I recommend that you study the broader market context in addition to identifying and validating the pattern. Use RSI divergence, MACD crossover, or a Smart Money Concepts (SMC) CHoCH as additional confirmation. Avoid trading Harami Crosses that form in the mid-range or inside a chop.
Entry typically happens after a bullish confirmation, and the stop-loss is placed just below the support level or the pattern’s low. Profit targets are often based on prior swing highs or the next resistance levels. Here, we have the harami near a point of a trend line break (something alluded to earlier as crucial when identifying the pattern). You can incorporate these techniques with confluence from technical indicators. Again, traders can choose between conservative and aggressive approaches. They should also ensure their position size aligns with the method chosen and is no more than 2% of their trading capital.