Bullish harami patterns are a two candlestick pattern. They typically occur at the bottom of downtrends and signal a potential reversal. The first candle is a bigger, bearish candle, followed by a second, smaller, bullish candle that’s contained within the bearish candle. The word harami means pregnant, so picture this visual when looking at the pattern because the small candle looks like the belly of the candle. Look for the price to break above the small candle to confirm a bullish continuation.
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Bullish Harami Pattern Meaning
A bullish harami pattern consists of two candlesticks that form near support levels, where the second candle fits entirely within the larger first bearish candle. Typically, when the second smaller candle fits inside the first, the price causes a bullish reversal. These patterns are two candlestick patterns found on charts; this pattern signals the reversal of a bearish downtrend.
Bullish harami patterns consist of 2 candlesticks. A large candle should be followed by a smaller one; the small candle should be located within the vertical range of the first one.
Basics
The bullish harami candlesticks pattern has a large bearish candle engulfing a small bullish candle. The word harami is a Japanese word for pregnant; the outline of the pattern looks like a pregnant woman. The stock is in a downtrend but is pregnant with a bullish reversal. When the bullish harami candle forms, a shift occurs, and the trend changes.
Since this formation signals a reversal, entering a long position may be a good opportunity. As always, look for confirmation instead of assuming a reversal is happening. News, earnings, greed, and fear can change a stock’s direction within seconds.
The Technicals
Bullish harami candlesticks can be a part of a larger pattern, such as symmetrical triangle patterns. Smaller 2-day patterns, such as the bullish harami, may not always form a significant reversal. Doji candlesticks can form after the initial pattern, sometimes creating confusion. It is essential to wait for a clear direction; sometimes, a stock can fluctuate and consolidate in a specific area while determining its next move.
Small, bearish patterns can sometimes form into large, bullish patterns and vice versa. That may affect the outcome of the small patterns.
Patterns, no matter their size, break down all the time. Using technical analysis in conjunction with patterns is helpful in gauging moves.
Bullish Harami Pattern Trading Strategy
- Watch for 1st falling bearish candlestick to form
- Next, watch for 2nd smaller candlestick to fit inside 1st candle
- Then, watch for 3rd candlestick to break above 2nd
- Traders take a long position once the price breaks above the 2nd candlestick
- Place the stop below the base of the 2nd candle
- Some traders take a short position once the price falls below 2nd candle
- Then place the stop above the 2nd candle
Bullish Harami Pattern Example
This is an example of a bullish harami on a daily chart of $GLD. There was a large red bearish candlestick followed by a small green bullish candlestick inside—this pattern formed inside a cup and handle, as well as an inverse head and shoulders pattern. The harami made up the right shoulder of the inverse head and shoulders and the handle formation of the cup and handle.
Traders would enter a long position as the price breaks above the high of the bullish candle. They would place their stop loss below the low of the bullish candlestick. You’ll see that a rising wedge pattern formed after the bullish harami breakout. It turned into a large sideways flag at the top.
AMZN Example
This is an example of a bullish harami pattern on a daily chart of $AMZN. There was a falling wedge pattern that preceded the harami pattern. The harami formed at the apex point of the falling wedge. As the price breaks above the bullish candlestick, you would take a long entry and place your stop-loss below the base.
You’ll notice the shadow of the bullish candlestick didn’t stay contained within the bearish candlestick. That’s okay because the real body did. Harami’s won’t always look perfect. They tell the story that the bulls are trying to regain control and increase the price. After the price broke out, it became a rising wedge pattern, followed by a falling wedge.
Resistance Failure
It’s essential to pay attention to where the bullish harami formation occurs before taking a trade. In the picture above, the formation occurred on a daily chart of $AMZN near previous highs. Note that the line across the top of the previous high formed the top of the cup of a cup and handle.
The bullish harami ended up being the handle areas. However, since it was near previous resistance, it had a brief breakout, becoming a fakeout and a head and shoulders failure. The price had a drastic drop that formed a falling wedge pattern.
When the price reversed from its major drop, it formed a rising wedge pattern within a larger cup pattern. At the top of the rising wedge was a bearish harami, or some might consider a tweezer top near the top of the cup, signaling a bearish reversal.
Final Thoughts: Bullish Harami Patterns
Bullish haramis are very popular patterns found in all different time frames. It’s important to remember that the preceding trend will help determine how strong the reversal is. If the preceding trend has been prolonged, that might signal a stronger reversal than a short-term reversal.
Always wait for confirmation before entering into a trade with a bullish harami. The break and hold above the high of the second candlestick and key. Also, seeing the pricing break above and holding the first candle will confirm a strong reversal. Use proper risk management techniques when trading bullish harami patterns.
Frequently Asked Questions
Is Bullish Harami Reliable?
The bullish harami is a reliable bullish reversal pattern that’s found near downtrends or support levels. Although they are accurate patterns, they are not entirely reliable. Patterns do fail, and it all depends on how strong the harami formation is and where it is found.
What Is the Psychology Behind the Bullish Harami?
The psychology behind the bullish harami means that price action is in a downtrend with the bears in control. The small bullish candlestick inside the bearish one indicates that the bulls are attempting to regain control from the bears.
What Is the Entry Point for Bullish Harami?
The entry point for a bullish harami is when the price breaks above the high of the small bullish candlestick. Traders would place their stop loss below the low of the bullish candle.
What Is the Difference Between Harami and Engulfing Pattern?
The harami and engulfing pattern are very similar. Haramis have a large candlestick on the left and a small candle on the right. Engulfing patterns have a small candle on the left and a large candlestick on the right. They are both reversal patterns.
What Happens After Bullish Harami?
The bullish harami pattern indicates that a trend reversal is about to occur, favoring the bullish side of a security. They are two candlestick reversal patterns that are often found near downtrends and support levels.
