Bullish Harami Pattern: A Comprehensive Trading Guide

You’ll know that confirming or properly identifying a Harami pattern is essential in order to plan your trades accordingly. Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform. Studies conducted by CandleScanner on S&P500 daily stock charts from 1995 to 2015 provide more promising results. Stop-losses can also be an important tool for minimizing your chance of risk and controlling the amount of money you’re comfortable losing. Gordon Scott has been an active investor and technical analyst or 20+ years.

The red arrow marks a pattern that could have become a bearish harami if the lower shadow had been shorter. The red arrow points to the testing of a cluster of large volumes on September 11, formed around the low of the September 6 candle. For a cluster chart analyst, this test could have provided a long entry setup with the same profit target but significantly lower risk. According to Candle Scanner statistics, traders are more likely to see positive outcomes rather than losses when trading the harami pattern. While they are fairly common and easy to understand, even for beginners, it’s crucial to combine them with other market indicators and metrics to make sure you are using the patterns in an informed and safe way. As with pretty much anything in the finance world, harami patterns have both their benefits and their drawbacks.

What type of pattern is harami?

A pending order is where you open a trade that will only be initiated when a certain condition is met. In case of a bullish harami, you could place a buy-stop above the upper shadow of the mother candlestick. Here, the bullish trade will be initiated if the price moves above the shadow. A closer look shows that the two sticks have a close resemblance to a pregnant woman. Among them, the harami candlestick is a relatively popular pattern that traders use to identify chart reversals.

The candlestick is made up of two candle that happen when a bullish or bearish trend is about to end. In this article, we will look at what the harami candlestick is and how you can use it in day trading. The chart shows a price reversal in Microsoft (MSFT) stock, with candles 6 and 7 marking a bullish harami pattern. Ideally, candle 6 should have formed at the bottom of the decline for a perfect setup. Both the bullish harami and tweezer bottom patterns are used to signal bullish trend reversals.

You can set your take-profit levels depending on the ratio of risks to rewards. It will be placed below the support level or entry point during the bullish pattern formation and vice versa. This example highlights how developing skills in cluster chart analysis can elevate your candlestick pattern trading, even if you find these patterns outdated.

Similar to the Moving Average Convergence Divergence (MACD), a bullish signal occurs when the indicator’s Fast (blue) line crosses above its Signal (orange) line, indicating that buying pressure is gaining strength. Hence, when the STS confirms the bullish harami in this manner, it increases the pattern’s probability of successfully leading to a bullish reversal. For example, if the price is still declining while the RSI begins to rise, the price will likely follow the RSI’s reversal signal. To illustrate, we observe a clear bearish trend (downtrend) preceding the pattern’s appearance. Then, the RSI rose despite the price hitting a new low (represented by the pattern’s first candle—a long-bodied bearish candle). This RSI divergence, therefore, supports the potential for a bullish reversal when the second candle—a much smaller bullish candle—gaps up above the first candle and completes the bullish harami pattern.

• In this article, we will look at what the harami candlestick is and how you can use it in day trading.
• We can also use the Moving Average Convergence Divergence (MACD) indicator as a confirmation tool when considering a trade based on the bullish harami candlestick pattern.
• Yes, as its name implies, the bullish harami is indeed a bullish reversal pattern.

CFDs across Foreign Exchange, Metals, Commodity and Stock markets around the globe

In this article, we will examine how effectively classic candlestick patterns can be used in modern trading. When it comes to bullish patterns, the best time to start a long position is usually by the third or fourth candle when the pattern is confirmed. A good sign to enter is when the price breaks above the high of the second candle.

How accurate is the bullish harami pattern?

• Keep in mind what gains could be enough for you in this particular market.
• Another thing you can see is that the two candles have an upper and lower shadow.
• The pattern indicates a change in trends or a potential reversal of prices.
• Immediately, you can see that we now have a better understanding of the overall price context.

This trial allows you to explore the benefits of higher-tier plans and make a well-informed purchasing decision. Analyzing volume data with professional footprint charts can provide valuable insight. A big clue of a continuing downtrend was when the next candle gapped down below the low of the first candle of the harami. Other important indications are moving averages, RSI (relative strength index), and Fibonacci retracements. The first candle is always bigger and the second is a smaller candle whose body is completely within the size of the first one.

Limited Use in Momentum Trading

For the bullish Harami pattern, put the stop-loss right below the low of the first bearish candlestick. You can put the stop-loss above the high of the first bullish candle for the bearish version of the pattern. Still, the best approach to use the harami pattern is to combine it with several parts of technical indicators like moving averages and Bollinger Bands. You can look at this article to see some of the most common reversal indicators you can use in the market. A bearish harami cross is a variation of the bearish harami pattern where the second candle is a doji, meaning its opening and closing prices are almost at the same level. Both harami patterns begin with a long-ranged candle and end with a small second candle that is contained within the first.

As mentioned above, both patterns are quite common, but it’s important to note that they shouldn’t be used as a sign of confirmation in isolation, and both of them can benefit from broader analysis with other metrics. Don’t make the mistake of leveraging the Harami pattern to trade in a low-volume market. It can be less accurate and reliable due to the chance of erratic movements in prices.

Low-Risk Entry Points

As shown, there was a clear bearish trend (downtrend) before the bullish harami appeared. The pattern then served as the starting point of the upcoming bullish trend (uptrend) that followed shortly after. You can use the bullish harami candlestick pattern on bare candlestick charts with no other technical analysis tools except for the price chart itself. In this example, we can see that the bullish harami appears during the pullback phase of an ongoing bullish trend (uptrend).

The classic harami pattern is most effective on daily candlestick charts where gaps can occur. However, it is less applicable to the cryptocurrency market since coins trade 24/7. During the second low of the double bottom pattern, a bullish harami pattern appears.

The stop-loss was triggered the next day, but the profit target was not reached for several days. In this case, the bearish harami indicated only a short-term pullback within a developing uptrend. The main volume of trades was recorded at the lower part of the September 6 candle. The start of trading at higher levels on September 9 indicated the formation of a bear trap — a signal that increases the chances of a reversal from the bottom. The harami pattern suggests a potential trend reversal, where the smaller candle forms within the body of the previous larger candle.

The first two black candles indicate a two-day downward trend in the asset, and the white candle represents a slightly upward trend on the third day, which is completely contained by the body of the previous candle. Investors seeing this bullish harami may be encouraged by this diagram, as it can signal a reversal in the market. The harami pattern signals a potential trend reversal when harami candlestick a smaller second candle forms within the body of the first.

The best approach is to use cluster charts, which offer rich insights and allow you to decode the market signals hidden within the harami candles. Yes, the bullish harami works as a reversal pattern to initiate a potential uptrend (from a downtrend) or continue upward momentum (from a pullback). Therefore, to be profitable, it’s crucial to have sound risk management in place to ensure you do not incur significant losses when the pattern fails. Finally, and perhaps the most potentially confusing, the bullish harami and inside bar formations can look similar or even identical in some scenarios.

A candlestick chart typically represents the price data of stock on a single day, including opening price, closing price, high price, and low price. It is now time to enter the trade and you can take up a short position once the price breaks below the low point of the second candlestick. Alternatively, you can take a long position as the price breaks above the high point of the second candlestick. In September 2024, Tesla’s (TSLA) daily chart showed a harami cross pattern (1), where the first candle is a wide bearish one, and the second, located inside, closely resembles a doji. Key market levels like support or resistance levels are crucial to make sure that the pattern is a strong indication of a change. You can also make sure you set take-profits exploring the historical resistance or support levels of the asset.