Bullish Harami candlestick pattern is a price chart pattern that signals trend reversals in an ongoing bear market. Bullish Harami candlestick pattern is a two candlestick pattern in which there is a long bearish candlestick and small bullish candlestick pattern. The entire body here lies within the body of the prior bearish candlestick. Investors and traders see a small-bodied bullish candlestick of the Bullish Harami as a sign of bearish trend reversing.
What is Bullish Harami Candlestick??
Bullish Harami Candlestick is a price chart pattern formation that signals a bullish trend reversal. A bullish Harami candlestick comprises two candlesticks including a long bearish candlestick and a short bullish candlestick. The name Harami traces its origin to the Japanese language. Harami in Japanese means :” Pregnant:” It consists of bearish candles with a large body. As a sign of changing momentum the small bullish candle gaps up to open near the mid-range of the previous candle.
The Bullish Harami Cross
Traders often look for the second candle in the pattern to be a Doji. The reason for this is that the Doji shows indecision in the market. The colour of the Doji candle is not of too much importance because the Doji itself appearing near the bottom of the downtrend, provides the bullish signal. The Bullish Harami Cross also provides an attractive risk to reward potential as the bullish move is only just starting.
How to Identify a Bullish Harami on Trading Charts
The structure of bullish Harami Candlestick Pattern consists of long bearish candlestick and a short bullish candlestick following it. The entire body of the second candlestick must fall inside the body of the prior bearish candlestick for the pattern to form a bullish Harami pattern. The image below shows a bullish Harami candlestick pattern.
The image above shows that the bullish Harami candlestick pattern looks like a pregnant woman who is carrying a child in her womb. The red long bearish candlestick pattern stands for the woman and the small green bullish candlestick pattern represents the child in the womb. Investors and traders use this distinct shape of the pattern to identify the bullish Harami pattern on price charts. The second candlestick in a bullish Harami pattern is also sometimes a Doji candlestick pattern.
Advantages and Limitations of Bullish Harami Candlestick Pattern
Provides an Early indication of Potential Bullish Reversal
Not always a Guaranteed Signal of a Bullish Reversal as False Signals can occur
Helps traders strategically position for potential uptrends
Requires Confirmation from other indicators or Patterns for Reliability
Complements other Trading Strategies and Indicators
Patterns Effectiveness can be influenced by its context within the Broader Price Trend.
How Can I Trade the Stock Market Using the Bullish Harami Candlestick Pattern?
There are primarily three steps to trading in the stock market using the bullish Harami pattern. The first is the identification of the pattern, the second is the confirmation and the third step involves trading based on the signals produced by the pattern. The three main steps are listed in detail below.
- Identification of the pattern
The first step to using the bullish Harami pattern to trade in the stock market is identifying the pattern on the price chart. Investors and traders must look out for the bullish Harami pattern with a first long bearish candlestick that is followed by a short bullish candlestick on the stock price chart. The entire body of the second candlestick must lie within the body of the prior bearish candlestick for the pattern to be a bullish Harami formation.
- Confirmation of the pattern
The first step to using the bullish Harami pattern to trade in the stock market is confirming the pattern on the stock price chart. The third or fourth candlestick in a bullish Harami pattern usually confirms the upcoming bullish trend. The confirmation candlestick in a bullish Harami is a bullish candlestick that closes above the prior bullish candlestick. The image below shows a trend confirming candlestick in a bullish Harami pattern.
The image above shows that the confirmation candlestick closes above the second candlestick of the pattern. The trend is assumed to continue once the confirmation candlestick confirms the trend reversal. Investors and traders can also use other momentum-based indicators such as the MACD or RSI to confirm the predictions made by the bullish Harami patterns.
- Deciding on trade entry and exit points
The third and final step to using the bullish Harami pattern to trade in the stock market is entering the trade using the pattern signals. The confirmation candlestick which is usually the fourth or third candlestick in the bullish Harami pattern is considered the best time to enter the trade. Investors and traders must aim to enter the trade just before the confirmation candlestick closes to maximize their returns. Investors and traders also commonly use stop losses to prevent losing a large sum of money. A stop-loss order is a pre-decided order that states that a security can be either bought or sold when it reaches a certain price known as the stop price. While trading using the bullish Harami candlestick pattern, a stop loss must be placed below the low of the first bearish candlestick.
Apart from following the three main steps, investors and traders must also gauge the market conditions before trading in the stock market using the bullish Harami pattern. Using indicators that confirm the trends as well as trading techniques such as stop loss order help to reduce the chances of risk.
What is the ideal time to trade utilizing the Bullish Harami Candlestick Pattern?
The ideal time to trade using the bullish Harami candlestick pattern is after the bullish trend has been confirmed. The ideal time usually occurs in the third or fourth candlestick of the pattern when the trend gets confirmed. Investors and traders must enter the trade when the confirmation candle is about it close, to ensure good returns.
What Indicator is Best to Combine with Bullish Harami Candlestick Pattern?
The best indicators to combine with bullish Harami candlestick patterns are momentum-based technical indicators like the Moving Averages Convergence Divergence(MACD), the stochastic indicator and the Relative Strength Indicator(RSI). Momentum-based indicators work well with the bullish Harami pattern as the trend reversals predicted by the Harami patterns can be cross-checked with the overbought and oversold levels that the momentum-based indicators signal. The bullish trend is confirmed if the momentum-based indicators indicate an oversold level.