The harami is made up of two distinct candlestick pattern formations, with the size of the first candlestick notably long and the size of the second candlestick noticeably smaller. The name “Harami” has a Japanese origin meaning pregnant woman because the downtrend is about to give birth to an uptrend from forming the candlestick pattern. The other more obvious signal comes when the price actually breaks the blue trend line in bearish direction.
This was confirmed by Moving Average Converge Divergence (MACD), with a crossover indicating a change in momentum followed by a rise from oversold region by Relative Strength Index (RSI). Suddenly, the price action prints a Harami chart pattern, which you can see in the green rectangle. The candle that comes afterward is bullish and closes above the second Harami candle. Notice that the bearish candles become bigger and bigger with the progress of the price decrease. Another similar pattern to the harami is the Harami Cross, which is a variation of the harami that includes a Doji candle preceding a long green or red candle. On easy way to gauge the strength of a trend is to look at the ranges of the candles.
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A bullish Harami occurs at the bottom of a downtrend when there is a large bearish red candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. A bearish Harami occurs at the top of an uptrend when there is a large bullish green candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. The figure presents that the biggest “problem” of the harami patterns is their first candle. On the chart, we can see that the market could not win with the Black Candle being the first line of the Bullish Harami pattern.
What Is The Bullish Harami Candlestick Pattern?
Bullish harami candlestick patterns are undoubtedly helpful for spotting and identifying price trend reversals. The harami candlestick pattern formation, which can occur on a price chart as bullish or bearish, can be traded by investors and traders irrespective of its type of occurrence. Upon analyzing the daily chart, it becomes apparent that an uptrend has been in progress since the end of September. However, caution is warranted as the sharp uptick in the A/D index post-10th October could potentially signal an overheated market, thereby paving the way for a reversal pattern and bearish haramis.
But the closing should be below the opening price of the prior day’s candle. The bullish harami pattern is part of the bullish candlestick patterns family. Trading decisions based on standalone bullish harami candlesticks setup may not be advisable due to false reversals and breakouts. Traders go to great lengths to combine candlestick patterns, chart patterns, strategies, and even indicators to outsmart the market due to its high volatility and price actions. It starts with a longer bearish candle, which fully engulfs the body of a following bullish candle.
How Do You Trade on a Bullish Harami?
The second line can be any white basic candle, appearing both as a long or a short line. Notice how there are numerous areas on the chart where the market has gapped – showing wide open spaces between candles. The best average move 10 days after the breakout is a rise of 4.05% in a bear market.
- In short, patterns like the bullish harami should be seen as small indications of where the price is headed next that need to be validated with other methods as well.
- The second line can be any white basic candle, appearing both as a long or a short line.
- Notice that the bearish candles become bigger and bigger with the progress of the price decrease.
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- That means you probably can’t guess the breakout direction with
any accuracy.
Finally price breaks out upward thanks to a Rising Window pattern, occurring at a high trading volume. The bulls however are not strong enough and stock moved sideways and then downward. Ideally, to increase the accuracy, we want to trade the Bullish Harami candlestick pattern by combining it with other types of technical analysis or indicators. In this post, we will describe the bullish harami candlestick pattern in general, and then we will show you how to identify the right entry-level to trade this pattern. Mastering Japanese candlestick patterns can be challenging, especially when they are similar. For instance, the Harami cross is a type of harami pattern that looks like the Doji pattern.