How to Trade the Bullish Harami Pattern

The red arrow points to the testing of a cluster of large volumes on September 11, formed around the low of the September 6 candle. For a cluster chart analyst, this test could have provided a long entry setup with the same profit target but significantly lower risk. The Japanese candlestick chart patterns are the most popular way of reading trading charts. The daily Apple Inc. stock chart below shows an example of a Bullish Harami pattern formation and trend reversal. 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.

How to identify a bullish or bearish harami pattern

Both the bearish harami and tweezer top formations are used to signal bearish trend reversals. That said, compared to the bearish harami, where the second candle is contained within the first candle, the tweezer top pattern consists of two candles with identical highs, hence the name. Between the two, the tweezer top pattern is considered a stronger bearish reversal pattern, as its two identical or nearly identical highs demonstrate an active rejection of higher prices.

• The Bullish Harami pattern is also a mirrored version of the Bearish Harami candlestick pattern.
• Second, the bearish harami pattern can become remarkably effective when it forms near a psychological price level, especially round numbers (e.g., 10, 100, etc.).
• We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade.

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The small bullish candle will suggest a weak exit pressure and vice versa. The harami candlestick pattern captures a moment of indecision and potential power shift between bulls and bears. It’s a visual representation of market sentiment evolving from one extreme to another, making it a valuable tool for traders seeking to anticipate trend reversals. The Harami, which means “pregnant” in Japanese, is a multiple candlestick pattern that is considered a reversal pattern. This pattern consists of two candlesticks, with the first candlestick being a large candlestick and the second being a smaller candlestick. The Harami cross characterized by a very small real body almost like a Doji, the smaller the real body, the better it is for this formation.

The second bar is bullish and wholly engulfed by the first bar, fulfilling all the pattern requirements. It’s one of the worst-performing candlestick patterns in technical analysis when traditionally traded. The harami pattern suggests a potential trend reversal, where the smaller candle forms within the body of the previous larger candle. The strongest bullish candlestick features a long harami candlestick body and little to no wicks, signaling bullish pressure. Typically, this type of candlestick is coupled with a rise in trading volume, which can suggest significant upward momentum.

In addition, with the next two red candles we confirm a Three Black Crows candle pattern, shown in the green circle. This is when we sell Facebook short and begin to follow the price action. The high or low of a harami cross setup tends to provide resistance or support for any further price moves. Let’s take a look at a simple example that a day trader could have profited handsomely off of.

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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.

• Investing in Equity Shares,Derivatives, Mutual Funds, or other instruments carry inherent risks, including potential loss of capital.
• Traders should thoroughly assess market conditions and utilize additional data to improve the forecast accuracy.
• An example of such a strategy is displayed on the 4-hour USCRUDE chart.
• Hence, traders who want to hold positions for the long term may not be able to analyze market momentum with harami patterns accurately.

Unlike other technical indicators, RSI can act as a leading indicator when it diverges from price. The Harami Cross (Bullish) pattern is a powerful and reliable candlestick formation in technical analysis that signals a potential reversal from a downtrend to an uptrend. Understanding how to identify and trade this pattern can give traders an edge in timing entry points and managing risk effectively. Second, the bearish harami pattern can become remarkably effective when it forms near a psychological price level, especially round numbers (e.g., 10, 100, etc.). This is because many market participants place significant weight on these levels and monitor them closely. Finally, the Average Directional Index (ADX) is a technical indicator that primarily measures the strength of a trend, regardless of its direction (up or down).