Bullish Harami Candlestick Pattern What Is And How To Trade

A big clue of a continuing downtrend was when the next candle gapped down below the low of the first candle of the harami. Lawrence Pines is a Princeton University graduate with more than 25 years of experience as an equity and foreign exchange options trader for multinational banks and proprietary trading groups. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives.

1. By generating pivot points, we can identify the nearest suggested support level (S1) and resistance level (R1).
2. Following the bearish indication, the stock price started to fall and found some support only around $42.
3. 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.
4. To set profit targets using the Bullish Harami pattern, focus on key resistance levels or previous highs where the price is likely to encounter selling pressure.
5. It is worth noting that unlike the engulfing pattern, the harami’s first candle is long, while the second is short.
6. As said above, this pattern consists of a bullish candle following a bearish one.

A Doji, on the other hand, signifies indecision in the market as the open and close prices are very close to each other. While a Doji can indicate a potential reversal, it’s not as strong a bearish signal as the Bearish Harami. Fibonacci Retracements are another essential tool to use alongside the Bullish Harami pattern.

Depending on the strength of the trend, different bullish harami candlestick pattern levels are more likely to work better with the Bullish Harami pattern. Since we are looking for moves to the upside, we want to trade the Bullish Harami using support levels. 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.

In this illustration, we observe a bearish trend (downtrend) leading to the formation of a bullish harami pattern. By generating pivot points, we can identify the nearest suggested support level (S1) and resistance level (R1). 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).

Harami candlestick trading with price action

If the pattern is confirmed, you may enter a long position by buying the asset at the current market price. Stochastics (STS) is also used as a confirmation tool to validate the reversal signal provided by the bullish harami candlestick pattern in the chart. In this illustration, we can see a bearish trend (downtrend) that preceded the candlestick pattern. Hence, when the STS confirms the bullish harami in this manner, it increases the pattern’s probability of successfully leading to a bullish reversal.

Bullish and Bearish Harami Patterns

A Bullish Harami Candle pattern indicates a possible reversal from bearish to bullish momentum. It is created when there is a large bearish candlestick followed by a smaller bullish candlestick, with the latter having an open price that is within the range of the former’s body. If the next candlestick is also a bullish candlestick, then this is a confirmation that the market has indeed reversed and is now moving in an uptrend. On the other hand, if the next candlestick is a bearish candlestick, then this is a confirmation that the market has indeed reversed and is now moving in a downtrend. Harami candles are a type of candlestick pattern that can be used to predict future price movements in the market.

It’s worth noting that the second candle will technically gap inside the first. Gapping on forex/stock/crypto charts, on the other hand, is uncommon due to the 24-hour nature of currency trading. As a result, the theoretically perfect harami candlestick pattern is uncommon in the FX market, as gaps are narrow and the second candle frequently forms a small inside bar of the first. If entering long on a bullish harami cross, a stop loss can be placed below the doji low or below the low of the first candlestick. A possible place to enter the long is when the price moves above the open of the first candle.

Although it may not be the strongest reversal signal, it is still a valuable tool for you to use when identifying market turning points. Its body and high and low shadows should be entirely contained within the first candlestick. The small green bar represents a potential shift in market sentiment, as the bulls have started to take control and create a support level that the bears were unable to break. The pattern is considered more reliable if the second candle opens with a gap up. During the second low of the double bottom pattern, a bullish harami pattern appears.

1. It’s worth noting that the pattern formed above the trendline, suggesting that the market might be overextended.
2. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions.
3. 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.
4. Traders or investors can improve their ability to predict and respond to changes in the market by becoming proficient in these patterns.
5. This long, full-bodied candle with little to no shadows demonstrates overwhelming buying pressure.
6. Since we are looking for moves to the upside, we want to trade the Bullish Harami using support levels.
7. Following the bullish signal, the stock made a significant recovery towards $200.

Bearish Harami Pattern

The first candlestick in the pattern has a large real body while the second candlestick is a Doji which confirmed the pattern and signaled a bullish reversal. Following the bullish signal, the stock made a significant recovery towards $200. On the 13th of October, the market provided a small red body preceding a long green candle, indicating a Bearish Harami Pattern. Moreover, the A/D index began to decline once the candle had closed, providing further confirmation that the trend may have reversed. Subsequently, it was recommended to take a short position with a stop loss, in case the pattern did not confirm. Fortunately, the short position proved to be fruitful, yielding almost 10% profit by the end of the month.

Key Takeaways

For a bullish harami cross, some traders may act on the pattern as it forms, while others will wait for confirmation. In addition to confirmation, traders may also give a bullish harami cross more weight or significance if it occurs at a major support level. If it does, there is a greater chance of a larger price move to the upside, especially if there is no nearby resistance overhead.

The Harami Cross pattern, just like the regular Harami pattern, is a candlestick pattern that can be a Bullish or Bearish trend reversal based on where it is positioned on the chart. Just like the Bullish Harami pattern, after noticing this trend, you should look for a confirmation which will ideally show up as a bearish candlestick right after the Bearish Harami pattern. If you get a confirmation, this should trigger a sell signal which could be a sign for investors to pull out of the market. In this example, the bullish harami functions as a bullish reversal of the downtrend when price breaks out upward.

When used together, the bullish harami and Bollinger Bands signal slowing momentum to the downside and a potential upside reversal. Yet, while the pattern seemed promising as it was also followed by a long bullish candlestick, it abruptly lost momentum and now moves sideways with no clear trend direction. This serves as a reminder that the market can move unpredictably, and we cannot perfectly forecast where the price will go, making proper trade management essential. A Marubozu Candlestick pattern is a candlestick that has no “wicks” (no upper or lower shadow line). A green Marubozu candle occurs when the open price equals the low price and the closing price equals the high price and is considered very bullish. A red Marubozu candle indicates that sellers controlled the price from the opening bell to the close of the day so it is considered very bearish.