Generally, while it can work, the pattern is less accurate when used on its own. In contrast, it becomes more accurate and reliable when paired with complementary technical analysis tools (e.g., RSI, MAs, volume, etc.) to better assess the pattern’s likelihood of leading to a possible reversal. The harami pattern suggests a potential reversal of the current trend, signaling a shift in market sentiment. A bearish harami points to a possible transition from a bullish to a bearish trend, while a bullish harami indicates the opposite. Unfortunately, the bullish trend (uptrend) failed to materialize, and the trend continued downward.
Not using other technical indicators –
This is because the significant volume, coupled with the jump in price (gap up), shows that buyers are starting to gain control. You can also use pivot points to automatically identify potential key price levels to monitor. 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).
Therefore, this drastically reduces the chance of incurring significant losses, as you can immediately cut your losses short (this is one of the most crucial trading techniques to be profitable). The bullish harami pattern often forms when a downtrend or pullback phase is “exhausted”—meaning the bearish momentum driving prices lower is losing steam. Volume is perhaps one of the most fundamental technical analysis tools you can use to increase your success rate in trading. Unlike other technical indicators that rely heavily on price, volume is independent of price, making it one of the most essential concepts to understand in trading. As a rule of thumb, when a bullish harami pattern occurs, we want to see above-average volume on the second candle (the small bullish candle), which is the case in this illustration.
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.
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Finally, there is the risk of mistakenly confusing an inside bar with a bullish harami. This is particularly common among newer traders who have yet to gain enough experience to effectively differentiate between the two patterns. They are a powerful sign that the market might change its direction, whether it’s a downtrend (bearish) that’s becoming an uptrend (bullish) or vice-versa.
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.
Bullish Harami Candlestick Pattern Trading Strategies
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.
What is a candlestick chart?
- Comparatively, the bullish engulfing pattern is generally considered a stronger bullish reversal pattern since the second bullish candle completely engulfs or covers the first small bearish candle.
- In contrast, it becomes more accurate and reliable when paired with complementary technical analysis tools (e.g., RSI, MAs, volume, etc.) to better assess the pattern’s likelihood of leading to a possible reversal.
- The bullish pattern will appear during the downtrend and the bearish one during a strong uptrend.
- For instance, if a bullish harami appears next to a support level, it’s more reliable that the price will actually go higher like the pattern predicts.
If your trading strategy relies on momentum, then using the bullish harami as your primary candlestick reversal signal may not be optimal. This is harami candlestick because other candlestick patterns, such as the bullish engulfing, provide more decisive bullish trend reversals. The bullish harami can offer early signs of a possible reversal into a potential uptrend or mark the end of a pullback.
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).
A final tip is to start training your trader eyes at seeing harami patterns in a demo account before trying them in live markets. By doing that, you will get more confidence in applying what you learned here in your strategies and will reduce the chances of falling prey to a false positive. While it’s true that harami patterns are powerful signs that a reversal is about to happen in the market, they are not fool-proof and should always be used in conjunction with other indicators and metrics. Similarly, it’s important to wait for confirmation with bearish harami by the third or fourth candle. A good moment to start your short position is when the price breaks just below the low point of the second candle. Harami candlestick patterns are two-candle patterns that can represent a reversal in a market trend.
Additionally, both harami patterns signal trend reversals, albeit on opposite sides. Harami is a type of Japanese candlestick pattern represented by two bodies, the first of them, larger, with black or red body and the second one, white or green. Its name derives from the Japanese word that means “pregnant” because the graphic that shows resembles a pregnant woman. Generally, the Harami pattern candlestick shows a changing trend.1 Like other Japanese patterns it too can be bullish or bearish. In short, the more information you get about the asset and market in question, the better you will be able to confidently use harami patterns in your trading strategies. Alternatively, a bearish harami pattern is a sign that buyers are losing confidence in the asset and sellers are starting to dominate the market.
Always double-check your predictions and that risk management actions can give you more control and peace of mind while trading with harami patterns and other prediction tools. With bullish harami, traders can see that sellers are losing control and that buyers are starting to notice the potential growth of the asset and take action. Now you can see why following these classic trading rules for the bullish and bearish harami triggered stop-losses on the AMZN chart earlier (although it could have also led to a profitable trade).
What type of pattern is harami?
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. In this example, we can observe a strong bearish trend (downtrend) where the pattern appeared. The bullish harami candlestick pattern tells us that the market sentiment is changing and that price will likely follow. In a downtrend, this could mean a complete trend reversal towards an uptrend. Meanwhile, if this pattern appears during a pullback in an uptrend, it could mean the end of a corrective market decline, signaling a renewed bullish momentum and the resumption of the upward price trajectory. With that said, we can see that the two patterns are a complete mirror of each other.
It then formed a big bullish candle that was then followed by a small candlestick. A Harami candlestick is one of the several types of Japanese candlestick patterns. As the name suggests, it has it is made up of a large bullish or bearish candle that is followed by a smaller one of the opposite colour.
This formation suggests a potential market reversal, offering an entry point for traders considering long positions. In that category, the harami candlestick patterns are two famous patterns that can indicate a reversal in the previous trend of the market. They are the bullish and bearish harami patterns, and in this article, we will explain how you can identify them and start using them in your trading strategies. Recognizing this pattern requires a close examination of daily candlestick charts to spot potential trend reversals. Alongside its counterpart, the bearish harami, the bullish harami is one of several basic patterns that traders utilize to anticipate market movements and make informed trading decisions. However, using these indicators should be part of a broader strategy that considers multiple factors in financial markets.
In this example, we can see how the bullish harami candlestick pattern can also be used during a pullback phase (a temporary decline) within an established bullish trend (uptrend). Looking at the chart, we observe a strong upward price trend followed by a sudden, continuous decline in price, represented by red candles making lower lows. Then, a short-bodied bullish candle gapped up after a long-bodied bearish candle, forming the bullish harami pattern. This pattern signaled the end of the pullback phase and the start of renewed bullish momentum as the upward price trajectory resumed. This candlestick chart shows the ideal scenario when trading the bullish harami candlestick pattern.
What is the best time frame to use for the bullish harami pattern?
You can incorporate the Relative Strength Index (RSI) into your candlestick charts to help assess the quality of a bullish harami candlestick pattern. Unlike other technical indicators, RSI can act as a leading indicator when it diverges from price. That said, compared to standard bullish harami patterns, the variant’s second candle—resembling a cross—represents a state of price equilibrium or indecision regarding the future price direction. Nevertheless, this variant still signals a potential reversal, as it also abruptly halts the prevailing downward price trajectory. Bearish and bullish harami patterns involve trading against the trend, making it essential to arm yourself with additional tools.
Simultaneously, the low of the bullish harami prints near the lower Bollinger band. 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. Trading with the bullish and bearish harami candlesticks is relatively simple. A bullish harami is made of a large bullish candlestick that is followed by a small bearish candlestick. On the other hand, a bearish harami is made up of a large bearish candle that is followed by a small bullish candle.
- ✓ the bullish harami suggests that the trend will shift to an upward movement; ✓ the bearish harami indicates that prices may move downward.
- The bullish and bearish patterns can help traders get ahead in seeing market reversals and preparing their strategies in a timely manner.
- Its name derives from the Japanese word that means “pregnant” because the graphic that shows resembles a pregnant woman.
- The pattern then served as the starting point of the upcoming bullish trend (uptrend) that followed shortly after.
- Bullish and bearish haramis are among a handful of basic candlestick patterns, including bullish and bearish crosses, evening stars, rising threes, and engulfing patterns.
The harami is a reversal pattern that signals a possible change in the trend’s direction. ✓ the bullish harami suggests that the trend will shift to an upward movement; ✓ the bearish harami indicates that prices may move downward. It’s important to note that the bullish harami can sometimes indicate only a temporary pause in its downward path rather than a full reversal. This is especially true when it occurs at a price level that lacks significance or when the confirmation tool you use does not align with the reversal signal. For momentum traders who rely on swift, aggressive moves, the bullish harami may appear too weak or slow in indicating a reversal, especially compared to stronger patterns like bullish engulfing or piercing patterns.
