A Bullish Harami pattern is a highly recognizable market reversal signal that experienced traders use to spot potential changes in trend direction. The word harami comes from an old Japanese word はらみ, which means pregnant, as the pattern visually resembles a pregnant woman. The pattern consists of a long candlestick followed by a smaller one, which is completely contained within the first candle’s body. Thanks to the widespread use of Japanese candlestick charts, this pattern has earned a reputation as a reliable indicator of future bullish momentum.
A Harami pattern is a tool that can help traders to build a competent strategy and make informed decisions in the complex and fast-paced environment of the Forex financial market. Let’s examine this bullish pattern in more detail in our review.
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Major Takeaways
- A Bullish Harami pattern is a candlestick pattern often seen on stock, cryptocurrency, Forex, and other charts, signaling a potential reversal of a bearish trend.
- The Bullish Harami pattern features two candlesticks. The first long bearish candlestick reflects downward market pressure. The second small bullish candlestick, which is contained within the first candlestick, shows a potential fading of bearish momentum. Besides, this bullish reversal pattern is often preceded by a noticeable gap in price movement.
- To trade a Bullish Harami pattern, you should look for the pattern after a prolonged downtrend. After that, wait for the confirming third bullish candle or other signals pointing to the beginning of a trend reversal. Once the pattern is confirmed, one may consider long trades.
- There are several strategies for trading a Bullish Harami pattern. A conservative approach involves waiting for the next candlestick to close above the high of the second Harami candlestick before opening a trade. An aggressive approach involves buying immediately after the Bullish Harami pattern forms without waiting for confirmation. However, you should prioritize risk management in this case. The third approach involves using the pattern in combination with other indicators, such as support/resistance levels, oscillators, and other candlestick patterns.
- A Harami pattern has several advantages. It has a straightforward structure and is easy to identify on charts. The pattern helps traders spot potential trend reversals early, providing an opportunity to capitalize on them. However, the pattern also has drawbacks, such as the risk of false signals, especially when the pattern forms far from key support levels or without confirmation.
- A Bullish Harami candlestick pattern can appear on any time frame. However, it is most often observed on higher time frames, such as daily or weekly charts, as higher time frames provide more reliable signals and reduce the probability of false ones.
- When trading a Bullish Harami pattern, it is advisable to set a stop-loss order just below the pattern’s low, allowing you to safeguard against market volatility and avoid significant losses if the pattern fails to confirm the reversal.
What Is The Bullish Harami Pattern?
A Bullish Harami pattern plays an important role in technical analysis, signaling the potential shift to an uptrend. The pattern consists of two candlesticks:
- the first candlestick is bearish and relatively long, indicating strong bearish pressure;
- the second candlestick is bullish and much smaller. Notably, the body of the second candlestick is completely overlapped by the body of the first candlestick.
This formation signals a weakening of the current trend and suggests a potential reversal. Thus, a bullish Harami pattern indicates that after a period of decline, the market is showing signs of shifting sentiment. This could mark the beginning of an uptrend as buyers start to regain control and sellers lose their grip.
A Bullish Harami appearance can signal a chance to open a long position as the probability of an upward reversal increases. However, it is advisable to use the pattern in conjunction with other indicators and specific market conditions to make more informed trading decisions.
What Is The Bullish Harami Cross?
A Bullish Harami Cross is a type of Japanese candlestick pattern that is used by traders to analyze price charts and predict market movements. The distinctive feature of this variation of a Bullish Harami is the ability to predict a possible upward reversal. The pattern consists of two candlesticks:
- the first candlestick is long and bearish;
- the second candlestick is short. It can be a cross or a doji with little or no body.
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.
Therefore, the main difference between a Bullish Harami Cross and a regular bullish Harami candlestick is that in the former case, the second candle is a doji. This feature strengthens the signal, as a doji candle represents market uncertainty and a balance of power between buyers and sellers. When this pattern appears during a downtrend, it can signify a notable shift in momentum.
How To Identify The Bullish Harami Candlestick Pattern
To correctly identify a Bullish Harami pattern on a chart, you need to understand its key elements and follow clear criteria. Firstly, you should look for a long bearish candle that forms the basis for the Harami candlestick pattern. Once the first candlestick closes, the next shorter bullish candlestick emerges. The body of the smaller candlestick is contained within the body of the preceding one, which is the main sign of a Harami pattern.
Additionally, pay attention to the trading volume. An increase in volume during the formation of the second candlestick can reveal real trend strength.
A Bullish Harami candle pattern can be confirmed by accompanying technical indicators, such as key support levels and bullish divergences on the RSI or Stochastic indicators. Moreover, it is also useful to analyze previous trends and market context to assess further upside potential.
Thus, to effectively analyze and identify a Bullish Harami pattern, it is essential to examine the structure of the candlestick and find any confirming signals.
The daily Apple Inc. stock chart below shows an example of a Bullish Harami pattern formation and trend reversal.
How to Trade Bullish Harami Candlestick Pattern
It is advisable to utilize Bullish Harami candlestick patterns alongside various technical indicators to enhance market analysis and improve predictions of future price movements. By combining these candlestick patterns with indicators like moving averages, the RSI, or MACD, traders can more effectively pinpoint support and resistance levels, recognize changes in trends, and validate trading signals.
Trading with MACD and RSI
Using a Harami pattern in combination with the MACD and RSI indicators allows traders to pinpoint the best entry points and improve the accuracy of their forecasts.
The MACD indicator can confirm the bullish signal of a Harami pattern. If the MACD line rises during the pattern formation and crosses the signal line from below, it boosts the likelihood of a market reversal. This combination can serve as a strong additional confirmation, providing an opportunity to open a trade.
RSI values below 30 indicate that the asset is in an oversold condition, and a correction may start soon. If the RSI starts to recover, leaving the oversold zone during a Bullish Harami appearance, it may signal a bullish trend ahead.
An example of this strategy is shown below on the daily XAUUSD chart.
After a Bullish Harami occurred on the chart, the MACD indicator started to rise in the negative zone, crossing the signal line from below. RSI values also started to climb above 50, meaning that bullish momentum is gaining strength.
After confirmation signals were received, it became possible to open long trades near 985.98 with targets near 1005.97–1226.00. A stop-loss order should be placed at 968.13, below the low of the opening candle.
Trading with Fibonacci Retracements
A Bullish Harami pattern can be combined with the Fibonacci retracement levels to help traders analyze the market more precisely. First, identify a prevailing trend on a chart. Once a Bullish Harami pattern appears, plot the Fibonacci retracement levels from the end of the previous bullish impulse to the beginning of the trend. This will help identify potential resistance levels.
Pay attention to key levels such as 38.2%, 50%, and 61.8%, as they are considered the most significant in predicting potential reversals. When a Bullish Harami pattern forms near one of the retracement levels, it can reinforce a signal of a possible trend reversal.
The hourly Pfizer Inc. stock chart demonstrates an example of this trading approach.
The Fibonacci retracement levels are plotted from the end of the first upward impulse to the beginning of the bullish trend, from top to bottom, right to left. This analysis has revealed potential resistance levels and profit targets near 53.42-55.31 (1.618-2.618). A Bullish Harami pattern has formed near 0.382-0.5, after which an impulse bullish candlestick emerged with an upward gap. A long position should be opened near 52.27 after the pattern is confirmed. A stop-loss order should be placed at 50.86 (0.236 according to the Fibonacci indicator).
Afterward, a major Bearish Engulfing pattern appeared at the 55.31 level, indicating an imminent bearish reversal on the Pfizer Inc. stock chart and suggesting that long trades should be closed.
Trading with Confirming Candlestick Patterns and Trading Volumes
The Bullish Harami signal can be confirmed by other candlestick patterns. For example, if a Hammer appears after a Harami pattern, it strengthens the probability of an upcoming reversal. Furthermore, the Piercing Line, Bullish Engulfing, and Morning Star patterns may also signal a potential trend reversal.
Besides, trading volumes are crucial for confirming a Bullish Harami pattern. The OBV, MFI, and A/D indicators, as well as the Chaikin Oscillator, can help validate rising trading volumes. Additionally, increasing tick volumes during the second bullish Harami candlestick formation often points to growing interest among buyers, which reinforces the signal of an upcoming uptrend. An example of such a strategy is displayed on the 4-hour USCRUDE chart.
Once a Bullish Harami Cross pattern forms, a series of Hammer reversal patterns appear on the chart. The MFI and OBV indicators show the growth of trading volumes and the inflow of liquidity into the asset.
After the emergence of the second Hammer pattern, the market price climbed above the weighted average price of the VWAP indicator and the SMA20 line, confirming bullish sentiment. Thus, one may consider a long position at the 78.72 level with potential profit targets in the range of 83.13-91.78. A stop-loss order can be set near 77.66, below the Bullish Harami and Hammer patterns.
The Three Black Crows pattern signaled a potential downward reversal, suggesting it was time to close long trades. Additionally, the MFI showed reduced liquidity, and the OBV indicator revealed lower trading volumes, confirming bearish sentiment.
Bullish Harami vs. Bullish Engulfing Pattern
Patterns like these indicate a potential trend reversal and serve as crucial signals for making trading decisions. Although both patterns occur at the end of a prolonged bearish trend, a Bullish Engulfing is considered a more reliable signal of an impending market reversal. Traders should thoroughly assess market conditions and utilize additional data to improve the forecast accuracy.
| Parameter | Bullish Harami | Bullish Engulfing |
| Structure | A two-candlestick pattern with a small-bodied second candlestick | A two-candlestick pattern with the second candlestick engulfing the first one |
| First day’s candlestick | Long bearish candlestick | Bearish candlestick |
| Second day’s candlestick | A small bullish candlestick that is completely overlapped by the first one | A long bullish candlestick that fully engulfs the previous bearish one |
| Market psychology | Downtrend slowdown, possible reversal | A clear shift to bullish sentiment |
| Location | At the end of a downtrend | At the end of a downtrend |
| Potential meaning | Potential upward reversal signal | Strong upward reversal signal |
| Confirmation | Confirmation by the next candlestick is required | Needs less confirmation, as it gives a strong signal |
| Frequency | A Bullish Harami formation is less frequent compared to other patterns | Commonly seen on charts |
| Trader response | Traders wait for a confirming bullish candle | Traders can act more confidently |
| Interpretation | Depends on the overall market situation | It is essential to take into account market volumes and other indicators |
Bullish Harami Pattern Pros and Cons
A Bullish Harami pattern has its advantages and disadvantages:
| Pros | Cons |
| Indicates a possible trend reversal | Requires additional confirmation |
| Easy to recognize on a chart | Can generate false signals |
| Suitable for different time frames | Uncertainty in the strength of a reversal |
| Effective in combination with other indicators | Dependence on the previous trend |
| Can be used for short-term trading | Low reliability without broad analysis |
Conclusion
A Bullish Harami pattern is an essential tool for market analysis. The appearance of a Bullish Harami pattern on a chart can serve as a signal of a possible trend reversal and the onset of an uptrend. This allows traders to make grounded decisions based on a set of signals from Japanese candlesticks. Nevertheless, it is advisable to consider other technical indicators and tools to improve forecast accuracy. By combining various analytical methods, traders can significantly boost their trading effectiveness and minimize associated risks.
You can try trading the Harami candlestick pattern for free on the LiteFinance demo account.
Bullish Harami Pattern FAQs
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