August 12, 2022 | By devevon

Bullish Harami Candlestick Pattern Analysis Trading Strategy and Backtest Definition & Meaning

The bears seem to have lost the lead overnight, and given the bulls a chance to revert the trend. Once the trade has been initiated, the trader will have to wait for either the target to be hit or the stop loss to be triggered. The red horizontal line on the chart marks the right place for your Stop Loss order in this case – right below the lower candlewick of the first Harami candle.

Bearish Harami vs. Bullish Harami

A hammer candlestick has a small body near the top of the trading range and a long lower wick. It suggests that sellers pushed the price significantly lower during the period, but buyers managed to drive the price back up, indicating potential bullish momentum. Choose a specific timeframe for the candlesticks (e.g., one minute, one hour, one day) depending on your trading or analysis strategy. Different time frames provide different levels of detail and may reveal distinct patterns. Recent developments in the use of a Bullish Harami pattern include the use of machine learning and artificial intelligence algorithms to analyze market trends and make predictions.

How to Identify a Bullish Harami on Trading Charts

1. Generally, the pattern can form on any timeframe, but the higher the timeframe, the better the signal.
2. As you can see in the GBP/USD chart above, the first bearish candle has a longer body and appears at the bottom of a downtrend.
3. Knowing the important candlestick patterns will increase your probability of winning in trading.
4. As the prior trending move reaches its completion point, the formation of a Harami pattern can be used as the basis for live market positions.
5. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy.

Use stop-loss orders to limit potential losses and avoid overcommitting to any single trade. He has a vast knowledge in technical analysis, financial market education, product management, risk assessment, derivatives trading & market Research. Identifying the bullish harami pattern on a trading chart is fairly straightforward and easy.

Trading Strategies:

In Forex, Bullish Harami appears to confirm that the price will continue to rise. A Bearish Harami candlestick is formed when there is a large bullish candle on Day 1 and is followed by a smaller bearish candle on Day 2. Trading financial products carries a high risk to your capital, particularly when engaging in leveraged transactions such as CFDs.

I’ve ranked and reviewed every candlestick pattern, including the best double candlestick patterns. On easy way to gauge the strength of a trend is to look at the ranges of the candles. If the candles leading up to the bearish harami are long and big compared to the other bars, you know that the market is quite strong and determined to move higher. When the first candle of the bullish harami is formed, there is no sign of bullish market sentiment.

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. The bearish harami patterns tell investors and traders about upcoming bearish trend reversals.

This is the minimum potential you should expect during a Harami trade. If the price is trending in a certain direction, a Harami pattern is an indication that the trend is probably exhausted and we might be seeing a reversal soon. Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. This signals that there is uncertainty in the continuation of the ongoing trend. Pivot Points are automatic support and resistance levels calculated using math formulas.

As we can see, prices head lower almost immediately after the formation of the Harami candlestick pattern. This means traders could have established short positions in the asset, with stop-loss orders placed above the high of the first candlestick in the Harami pattern. Under this scenario, traders could have captured significant gains while experiencing little to no drawdown on short positions. Since these patterns occur in relatively high frequencies, traders can implement Harami trading strategies as part of a consistent repeatable strategy to capture profits.

In the case above, Day 2 was a bullish candlestick, which made the bullish Harami look even more bullish. Below are some of the common bullish candlestick patterns divided into Single candlestick patterns and Multiple candlestick patterns. We will learn everything about the bullish candlestick pattern with the real-life example to demonstrate how to use these patterns to set entry and exit points, maximising your profits. There are mainly three differences between the bullish harami and bearish harami candlesticks which are listed in the table below.

Using indicators that confirm the trends as well as trading techniques such as stop loss order help to reduce the chances of risk. Trading with the bullish harami candlestick involves making trade entries following the confirmation candlesticks. The ideal trading entry position while trading with a bullish harami pattern is during the closing hours of the third confirmation candlestick of the bullish harami. The entry positions are made above the high of the second candlestick of the harami pattern to gain maximum profits and stop losses can be used to prevent losses.

Unfortunately, this closing candle is a bit long and is very likely to eat a big part of your already gained profit. Here you should sell if a third bearish candle appears afterward and if it closes below the close of the previous bearish candle. Considering comprehensively, the pattern appearing in large time frames (H4, D, etc.) will be equivalent bullish harami candlestick pattern to a Triangle pattern in small time frames (M15, M30, etc.). This is a common form of market accumulation before a reversal or a continuation in an uptrend occurs. One should note that the important aspect of the bearish Harami candlestick is that prices gapped down on Day 2, and also, they were unable to move higher back to the close of Day 1.

One of the main advantages of the bullish harami pattern is the ease of spotting it on a price chart. Investors and traders can easily identify the bullish harami pattern on a price chart using its unique shape that resembles a pregnant woman. The image below shows an example of a bullish harami candlestick pattern used in trading. Using Fibonacci retracement levels in combination with a bullish harami pattern as a trading strategy could be tricky. You’ll have to identify the previous highs and lows of the previous trend to correctly draw Fibonacci levels and occasionally, you might even have to change a timeframe. As you can see in the GBP/USD chart above, the first bearish candle has a longer body and appears at the bottom of a downtrend.

We open a long trade at the Harami confirmation and we place a Stop Loss order below the lower candlewick of the first Harami candle. Initially, we aim for a price move equal to the size of the pattern. However, after accounting for two higher bottoms on the chart (first two blue arrows), we realize that this might be the beginning of a fresh bullish trend. In this case, we have a longer bearish candle during a bearish trend and a second bullish candle that is smaller and fully engulfed by the previous candle. The confirmation will come if we get a third bullish candle that closes above the close of the previous bullish candle. In Forex, candlestick and price signals are very important to every trader.

For example, if the volume of the bearish candle is very high, it might indicate a final blowoff, as we talked about before. In this article, we’re going to have a closer look at the bullish harami pattern. We’re going to cover its meaning, how you can improve its accuracy, and provide some examples of trading strategies that rely on the bullish harami pattern. Investors seeing this bullish harami may be encouraged by this diagram, as it can signal a reversal in the market. To some, a line drawn around this pattern resembles a pregnant woman.

In this article, we’ll explain what is the bullish harami pattern, what are its characteristics, and how to identify and trade this charting pattern. The Bullish Harami consists of two candlesticks and hints at a bullish reversal in the market. The Bullish Harami candlestick should not be traded in isolation but instead, should be considered along with other factors to achieve Bullish Harami confirmation. The data shows us that the patterns likely mean volatility is incoming and that traders should go against the grain and listen to the data instead of trading like everyone else.

In this trading strategy, we will combine the harami with Bollinger bands. The first candlestick is referred to as the “mother” with a large real body that embodies the smaller second candlestick, thus creating the visual of a pregnant mother. The most important aspect of the bearish Harami is that prices gapped down on Day 2 and were unable to move higher back to the close of Day 1. Everything that you need to know about the Bullish Harami candlestick pattern is here. Bullish patterns are best used in conjunction with other technical and fundamental analysis tools to make well-informed trading decisions. The length of the wicks reveals the price range between the high and low prices during the time interval.

Longer wicks signify greater price volatility, while shorter wicks indicate a relatively stable price range. The Bullish Harami pattern can be traded in an up-trending market and a range-bound market with sizeable price swings. It is used to look for buying opportunities, in anticipation of an upswing in price after a downswing. Strike offers free trial along with subscription to help traders, inverstors make better decisions in the stock market.

A Bullish Harami appearing after this bearish move is a sign of a possible reversal to the upside. When trading the Bullish Harami, we want to see the price first going down, making a bearish move. The pattern is bullish because we expect to have a bull move after the Bullish Harami appears at the right location. The best is to regularly update yourself with market trends and market news to enhance your trading acumen. This is a major sign of strength that leads to more people placing buy orders, which in turn fuels the coming uptrend. However, when the market opens the next day, it does so with a positive gap.

Here is a chart below where the encircled candles depict a bullish harami pattern, but it is not. The prior trend should be bearish, but in this case, the prior trend is almost flat, which prevents us from classifying this candlestick pattern as a bullish harami. This is a doji candlestick with a long lower wick and little to no upper wick. It signals that the price opened and closed at the high of the trading period and suggests potential bullish reversal. There are two main disadvantages of the bullish harami including the need for trend confirmation while using it and its inability to be used in isolation.

The only difference is that the bearish harami pattern appears at the end of an uptrend and has the opposite outcome that the bullish harami setup. Now that we know how to identify this supposed bearish reversal pattern let’s learn the best bullish harami trading strategies. Now, if you know these tendencies you could take those into account in your analysis. For example, a bullish harami that’s formed on a day that’s extra bullish might not be as accurate as one forming on a bearish day. The positive gap and bullish candle could just have been the result of the extra bullish sentiment of that period, and just be a short pullback, rather than a reversal of the trend.

The Bullish Harami pattern occurs after a downtrend and becomes more significant the more the market has gone down. For example, in some markets one day of the week or one-third of the month might be extra bullish or bearish. Now, we can enter the market based on a bullish divergence from the Stochastic Oscillator, combined with a bullish Harami pattern. Forex Harami patterns like every other pattern will never give you a 100% success rate. Therefore, you should secure every Harami trade with a Stop Loss order for limiting the potential loss. When we trade with price action, it means to rely fully on the price action on the chart.

It can be used to enter a long position or to exit a short position. The Bullish Harami is the original pattern, characterized by a large bearish candle followed by a small bullish candle that is contained within the range of the large bearish candle. It is considered a relatively weak reversal signal and it’s best used in combination with other technical indicators and chart patterns to confirm a potential trend reversal. Another key advantage of the bullish harami candlestick pattern is its comprehensibility.

Join 1,400+ traders and investors discovering the secrets of legendary market wizards in a free weekly email. The bearish mean reversion trading setup is the mirror opposite of its bullish brethren. In the above Microsoft chart, the trade made money, but these unsophisticated traders are going against what history tells us. The first candlestick is the mother with the child candlestick fitting within the body of the prior. Now, this means that we could use the moving average as a sort of profit target. In other words, we’ll exit the trade as soon as the price crosses the moving average from below.

The following bullish candle has a small body and short lower and upper wicks. Eventually, the trend reversal is confirmed and the price changes direction. The bullish harami belongs to the category of most popular candlestick patterns and is relied upon by many traders in their analysis of the markets.