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

Bullish harami is one of the Japanese candlestick patterns indicating a possible reversal from a down to an active market.

Understanding this pattern can help your technical analysis while trading to increase profit and limit risks.

This article explains the bullish harami candlestick, showing you how to identify it and trade it effectively, both with and without the use of indicators.

Key Takeaways

• The bullish harami pattern consists of a long bearish candle followed by a smaller bullish candle.

• It typically appears at the end of a downtrend, signaling a potential reversal.

• Confirmation from additional indicators like MACD and RSI can enhance its reliability.

What Is Bullish Harami?

Bullish harami is a candlestick pattern indicating a potential uptrend in an ongoing bear market.

• The term “bullish” means that traders expect the market to rise and asset prices to increase.

• On the other hand, a “bear” market means that the prices of the assets will decrease.

But what does harami mean in “bullish harami?” Fun fact, the term "Harami" is derived from an old Japanese word meaning "pregnant," and it's quite fitting when you see how the pattern looks on the chart.

It looks like the ‘green’ candle (bullish candle) is the pregnant belly of the red candle (bearish candle).

How is a Bullish Harami Candlestick Pattern structured?

The bullish harami is a double candlestick pattern. It consists of two candles:

• The first is a long, bearish candlestick that shows significant downward movement

• The second is a smaller bullish candlestick whose body is completely contained within the body of the first bearish candle.

The combination of these two candles forms the Bullish Harami, suggesting that the bearish trend might be coming to an end. So, the prices of assets might be increasing, making it a good time to go into a long position.

When Does the Bullish Harami Candlestick Pattern Appear?

The Bullish Harami candlestick pattern typically appears after a consistent downtrend. As said above, this pattern consists of a bullish candle following a bearish one.

So, this pattern signals that the bear market is weakening and that a bullish reversal is just around the corner. The bullish harami is particularly significant when it forms at a support level, where prices have historically tended to bounce back.

How to Identify a Bullish Harami Candlestick Pattern on a Chart?

To identify a bullish harami on a chart, look for a long bearish candle followed by a short bullish candle. To make this easier, since the bullish harami candlestick is one of the trend reversal indicators, look for this pattern at the end of a prolonged bearish trend.

Source: Top Stock Research

However, after spotting the bullish haram, you must verify the trend. Typically, the third or fourth candlestick will confirm the trend reversal. This confirmation comes if the third or fourth candlestick is bullish and closes above the prior bullish candlestick.

However, after spotting the bullish harami, you must verify the trend. Typically, the third or fourth candlestick will confirm the trend reversal. This confirmation comes if the third or fourth candlestick is bullish and closes above the prior bullish candlestick.

Different Types of the Harami Candlestick Patterns

There are different types of harami candlestick patterns. Let’s dissect the most common ones.

Bullish Harami vs. Bearish Harami

The Bullish Harami and Bearish Harami are both candlestick patterns signaling potential trend reversals but in opposite directions.

• The Bullish Harami consists of a long bearish candle followed by a smaller bullish candle entirely within the first candle's body, indicating a potential shift from a downtrend to an uptrend.

• The Bearish Harami features a long bullish candle followed by a smaller bearish candle within the first candle's body, suggesting a possible reversal from an uptrend to a downtrend.

Both patterns highlight market indecision and the possibility of a change in the prevailing trend.

What Is the Bullish Harami Cross?

The Bullish Harami Cross is also a candlestick pattern indicating a reversal in a downtrend.

This pattern is similar to the Bullish Harami, but with a key difference: instead of a small bullish candlestick, the second candle is a doji.

A doji forms when the open and close prices are almost identical, creating a cross-like shape with a very small or nonexistent body.

Bullish Harami vs. Bullish Engulfing Pattern

The Bullish Harami and Bullish Engulfing patterns are both indicators of potential bullish reversals but differ in their formation and strength.

As the opposite of the bullish harami, the Bullish Engulfing pattern features a small bearish candle followed by a larger bullish candle that completely engulfs the previous candle's body, indicating a stronger reversal with significant buying pressure.

While both patterns are valuable for spotting trend reversals, the Bullish Engulfing pattern is generally considered a more decisive and reliable bullish signal.

How to Trade Bullish Harami Candlestick Pattern (Technical Analysis)

Trading the Bullish Harami candlestick pattern can be a game-changer if you know how to spot and confirm it correctly.

Here are some tips on how to effectively trade the pattern.

Bullish Harami Naked Charts Trading Strategy

Trading the Bullish Harami pattern on naked charts means you're focusing solely on price action without using any indicators or technical tools.

To trade it effectively on a naked chart, look for this pattern at the end of a downtrend, ideally near a support level or after an extended move lower.

Once you spot the Bullish Harami, follow the below steps:

• Enter a long position when the next candle confirms the reversal by closing higher, indicating a potential upward move.

• Set your stop-loss just below the low of the Bullish Harami pattern to minimize risk.

• Target profits near recent highs or key resistance levels, using only price action to guide your trading decisions.

What Is the Ideal Time to Trade Using the Bullish Harami Pattern?

The best time to trade the Bullish Harami candlestick pattern is when the confirmation candle, usually the third or fourth in the sequence, is nearing its close, signaling the start of an upward trend.

By entering at this point, you increase your chances of capturing the reversal and securing better returns.

How to Set Stop Loss Levels Using Bullish Harami Pattern?

When trading the Bullish Harami pattern, setting a stop-loss is essential to manage risk.

The best place to set your stop-loss is just below the lowest point of the second, smaller candle in the pattern. This level is typically near the recent low of the downtrend, offering a logical point to exit if the market continues to move against your position.

Alt text: bullish-harami-stop-loss

By placing your stop-loss here, you limit potential losses while giving the trade enough room to develop if the anticipated reversal occurs.

How to Set Profit Targets Using the Bullish Harami Pattern?

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. These levels make for logical points to take profits.

Another approach is to measure the height of the Bullish Harami pattern itself and aim for a move of similar size in the opposite direction.

For example, let’s say you’re trading a stock that has been in a downtrend, and you spot a Bullish Harami pattern forming at a key support level.

If a Bullish Harami pattern forms at $80 after a downtrend, and the recent high was $100, you could set your profit target around $90, where resistance might occur.

Alternatively, if the pattern's height is $5, you could target $85.

Combining both approaches helps set realistic profit targets based on the expected market movement.

Trading the Bullish Harami Pattern with Technical Indicators

Even though trading the bullish harami pattern on naked charts is effective, combining it with technical indicators can give you a clearer picture of potential market reversals.

Combining this candlestick pattern with indicators like moving averages or RSI can strengthen your trading strategy and improve your entry and exit points.

Trading with MACD and RSI

Using indicators like MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index) can help confirm the validity of a bullish harami pattern.

MACD can show whether the market is gaining bullish momentum, while RSI helps identify overbought or oversold conditions.

When you see a Bullish Harami pattern forming, check the MACD for a bullish crossover (where the MACD line crosses above the signal line). This crossover indicates that bullish momentum is building, which supports the possibility of a trend reversal suggested by the bullish harami.

At the same time, check the RSI to see if it’s moving up (below 30), which suggests the market is recovering from oversold conditions.

These confirmations can provide additional confidence that the market is reversing upwards, making it a good time to consider entering a long position.

Trading with Fibonacci Retracements

Fibonacci Retracements are another essential tool to use alongside the Bullish Harami pattern. These retracements help identify potential support and resistance levels based on the Fibonacci sequence.

Here’s how to trade the bullish harami pattern with Fibonacci retracements:

Identify an uptrend and wait for a pullback or decline.

1. Draw Fibonacci levels from the recent high to the low of the downtrend using the Fibonacci retracement tool.

2. Look for alignment between the Bullish Harami pattern and key Fibonacci levels like 38.2% or 50%, signaling a potential reversal.

3. Enter a long position when the price breaks above the high of the last candle in the Bullish Harami pattern.

4. Set your stop-loss just below the low of the Bullish Harami, and aim for a profit target at the next Fibonacci level or a recent high.

Combining Fibonacci retracements with the Bullish Harami pattern provides a more comprehensive view of the market, enhancing your trading strategy.

Bullish Harami Pattern Pros and Cons

The bullish haram candlestick pattern has its own set of pros and cons.

Pros

• Indicates a potential reversal from a downtrend to an uptrend.

• Simple pattern consisting of two candlesticks, making it easy for beginners to spot.

• Provides a clear signal for entering a long position.

• Can be more reliable when combined with other indicators, such as MACD or RSI.

Cons

• Can produce false signals in volatile or sideways markets.

• Often needs additional confirmation from other indicators to reduce risk.

• Primarily useful for short-term trading rather than long-term investments.

• Effectiveness can vary depending on the overall market trend and context.

Conclusion

In summary, the bullish harami is an important candlestick pattern for traders looking to spot trend reversals in bearish markets.

While it's easy to identify and provides clear entry points, confirming the signal with additional indicators for increased reliability is essential.

If you need further help in your trading journey, join XS!

FAQs

Is Bullish Harami Reliable?

The Bullish Harami can be a reliable indicator, but like all candlestick patterns, it should not be used in isolation. Its reliability increases with other technical indicators, such as RSI and moving averages.

Moreover, before making any decisions, it’s crucial to consider the overall market context and other signals to validate the pattern’s reliability.

What Happens After Bullish Harami?

After a Bullish Harami pattern appears, it typically indicates a potential reversal of a downtrend. This means that the bearish momentum may weaken, and there could be a shift towards a bullish trend.

However, you should look for additional bullish signals in the following trading sessions.

When To Enter a Bullish Harami Pattern?

Enter a Bullish Harami trade cautiously, ideally after the next candlestick closes higher, confirming the reversal. Using tools like RSI or moving averages can provide additional confirmation, ensuring that the pattern's signal is strong before making an entry.

Which is More Bearish, Harami or Doji?

Between a Bearish Harami and a Doji, the Bearish Harami generally indicates a stronger bearish sentiment.

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.

What Indicator is Best to Combine with Bullish Harami Candlestick Pattern?

Combining the Bullish Harami with indicators like the Relative Strength Index (RSI) can enhance its effectiveness. RSI helps determine if an asset is overbought or oversold, providing additional context to the potential reversal signaled by the Bullish Harami.

Moving averages are also helpful in confirming the trend direction and strength.