ADX is one of our favorite indicators that we’ve found to work very well with many trading strategies. A candlestick chart typically represents the price data of stock on a single day, including opening price, closing price, high price, and low price. The presence of a Doji within the Harami Cross pattern signifies greater market indecision and uncertainty than what is typically suggested by the standard Harami pattern. Consequently, this elevates the Harami Cross as a more potent signal for trend reversal.
What is the Bullish Harami Candlestick Pattern?
This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. In this section of the article, we wanted to show you a couple of different approaches we use to improve the accuracy of different patterns. This is a major sign of strength that leads to more people placing buy orders, which in turn fuels the coming uptrend. The bears seem to have lost the lead overnight, and given the bulls a chance to revert the trend. To confirm the Bullish Harami Cross, wait for a subsequent price move higher, indicating the completion of the puzzle.
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In technical analysis, the Bullish Harami Cross pattern is akin to an adept archer frequently striking the bullseye. Exhibiting a bullish reversal in 53% of occurrences, this harami cross pattern offers a likelihood of success that surpasses mere chance. It does not achieve perfection, as evidenced by its performance ranking at 38th among 103 candlestick patterns. The Bullish Harami Cross is akin to a seasoned athlete, exhibiting reliable performance in the trading arena. Historical analysis reveals that this pattern forecasts a bullish reversal with 53% accuracy, signifying it offers better than a mere chance for successful predictions.
What are the disadvantages of a Bullish Harami Candlestick?
The Bullish Harami pattern is also a mirrored version of the Bearish Harami candlestick pattern. The best timeframes to trade with a Bullish Harami pattern can vary depending on a trader’s strategy and risk tolerance. Generally, the pattern can form on any timeframe, but the higher the timeframe, the better the signal. In the chart below, we have drawn Fibonacci retracement levels from the highest to lowest prices of the previous trend. Moreover, the stop-loss could be placed at the 78.6% level and the take profit target at 50%, and 38.2%. Therefore, to identify the pattern, you need to find a two candle pattern at the bottom of a downward trend with the above features.
Are a Bullish Harami Candlestick and a Shooting Star Candlestick Similar?
The third or fourth candlestick is considered a bullish harami confirmation candlestick only if it closes above the prior bullish candlestick. We’ve explored its meaning, and showed you how you could improve the pattern by using different filters. In addition to that, we’ve also covered a couple of example trading strategies.
But then, a small doji candlestick appears, completely contained within the previous candlestick’s body. This doji, like a flickering candle in a dark room, reflects the market’s indecision. It’s a pause in the narrative, a break in the rhythm that hints at a potential change in the plot. Most indicators signal the upcoming trend reversal, and others show that the market is consolidating, but today we will speak about an indicator with a kind of ambiguous reputation.
The first step in identifying a Bullish Harami is to find a prevailing downtrend. A downtrend is characterized by lower highs and lower lows in the price of the stock, signifying a bearish market. It suggests that the bearish momentum may be waning as buyers begin to enter the market. In Chart 2 above, a buy signal could be triggered when the day after the bullish Harami occurred, the price rose higher and closed above the downward resistance trendline. A bullish Harami pattern and a trendline break is a combination that could result in a buy signal. 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.
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- It is because of the success rate of 53% that it is advisable to act on the bullish harami signal after confirming with other technical indicators such as the MACD or the RSI.
- A high trading volume during the formation of the bearish candle, followed by a decreased volume during the formation of the bullish candle, can reinforce the Harami pattern.
The bullish harami can be used in conjunction with other technical analysis tools and indicators to enhance trading decisions. It provides traders with an early indication of a shift in market sentiment and potential bullish trading opportunities. According to the book Encyclopedia of Candlestick Charts by Thomas Bulkowski, the Evening Star Candlestick is one of the most reliable of the candlestick indicators. It is a bearish reversal pattern occurring at the top of an uptrend that has a 72% chance of accurately predicting a downtrend. Stops can be placed below the new low and traders can enter at the open of the candle following the completion of the Bullish Harami pattern.
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. Even better, you get the rules with Amibroker or Tradestation/Easy Language code (in addition to plain English if you like to code yourself, like putting it into a Python trading strategy, for example). Explore our Trade Together program for live streams, expert coaching and much more.
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. This pattern indicates that the bears are losing control and the bulls are starting to take control of the market, which suggests a potential reversal in the trend. It gives a bullish signal only after the price has broken above the high of the first candlestick.
If you spot the harami pattern at the end of the downward chart line, it is a bullish harami signal. The second candle opens at a significantly higher position than the previous candle. If you already see a green candle, the best moment to buy an asset is behind. However, some traders buy at this point expecting the continuation of the bull run.
For the Bullish Harami Cross, backtests can be found on research websites that analyze historical data of candlestick patterns. For example, a detailed backtest on Apple Inc. over a 20-year period showed an average gain of 1.31% across all trades, with 57% of trades being profitable. Harami candlestick patterns are a type of reversal pattern, where there are bullish and bearish equivalents. If the second candle is a doji, this pattern is classified as a harami cross. There are mainly three differences between the bullish harami and bearish harami candlesticks which are listed in the table below.
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The bearish harami patterns tell investors and traders about upcoming bearish trend reversals. Bullish harami patterns, on the other hand, tells traders about upcoming uptrends. The bullish harami candlestick pattern signals that the bulls are gaining control of the market and that asset prices are on the rise. A bullish harami candlestick is a price chart pattern that signals trend reversals in an ongoing bear market. Investors and traders see the small-bodied bullish candlestick of the bullish harami as a sign of the bearish trend reversing. 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.
Momentum indicators which indicate overbought and oversold levels work very well with the bullish harami patterns as the harami patterns are primarily trend reversal patterns. Examples of technical indicators which improve accuracy include the Moving Averages Convergence Divergence(MACD), the stochastic indicator and the Relative Strength Indicator(RSI). The image shows that the first candlestick in a bullish harami pattern is a long bearish candlestick and the second is a short bullish candlestick. The entire body of the bullish candlestick must fall inside the body of the bearish candlestick.
For example, in some markets one day of the week or one-third of the month might be extra bullish or bearish. During the rest of the day selling pressure tries to push the market lower, but buyers are there each time to prevent the market from heading lower. The bulls even manage to push prices a little higher, albeit not above the open of the previous bar. Although it does not appear exceedingly frequently, traders often greet the sighting of a Bullish Harami Cross with optimism as it may suggest an impending reversal in trend. This pattern is like a drama unfolding on stage, where the roles of buyers and sellers shift, and the market narrative potentially changes. Since we are looking for moves to the upside, we want to trade the Bullish Harami using support levels.
The validity of the Bullish Harami, like all other forex candlestick patterns, depends on the price action around it, indicators, where it appears in the trend, and key levels of support. A bullish harami is a two-candle bullish reversal pattern that forms after a downtrend. The first candle is bearish, and is followed by a small bullish candle that’s contained within the real body of the previous candle. 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. So, while the Bullish Harami Cross can be a valuable guide, it’s not a standalone map for navigating the markets. The Bullish Harami Cross candlestick has several advantages that make it a valuable tool in a trader’s toolbox.
Harami patterns are of two kinds namely the bearish harami and the bullish harami. Yes, the bullish harami candlestick pattern is reliable in technical analysis as long as it is used with other momentum-based technical indicators like the MACD or the RSI. There are three main steps to keep in mind while identifying the bullish harami candlestick pattern in technical analysis. Firstly, investors and traders must look for the bullish harami at the end of a prolonged bearish trend. The bullish harami candlestick is always found a the end of a bearish trend and it signals a possible trend reversal. The image below represents the main steps in identifying bullish harami patterns.
As a bullish reversal pattern, the Bullish Harami is a great pattern to watch for when the price is on an uptrend. To trade the Bullish Harami candlestick pattern it’s not enough to simply find a pattern with the same shape on your charts. We recommend backtesting all your trading ideas – including candlestick patterns. Arjun is a seasoned stock market content expert with over 7 years of experience in stock market, technical & fundamental analysis. Arjun is an active stock market investor with his in-depth stock market analysis knowledge. Arjun is also an certified stock market researcher from Indiacharts, mentored by Rohit Srivastava.
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. Yes, the bullish harami candlestick pattern is profitable, especially when used along with other technical indicators. The bullish harami is not ideally used in isolation as there are chances of possible false positives. Bullish harami patterns are profitable if they are used with other indicators that confirm the trend reversals.
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. To increase the reliability of the bullish harami pattern, bullish harami candle traders often seek confirmation from other technical indicators or patterns. Relying solely on the bullish harami without considering other signals may lead to inaccurate predictions and potential losses. Bullish and bearish haramis are among a handful of basic candlestick patterns, including bullish and bearish crosses, evening stars, rising threes, and engulfing patterns.
Following this, comes the crucial element—a tiny doji candle—symbolizing an impending shift in momentum. This small yet pivotal doji sits entirely within the larger real body of its predecessor, capturing market hesitation and signaling pause. Although the Bullish Harami Cross is a useful tool in a trader’s toolbox, it does have some limitations. Either way, just like with any other market indicator, it’s better not to use the harami pattern alone. Any conclusions you may get from this pattern can be false even if you do everything right. Combining harami with other tech analysis tools is better for confirming or refuting your calculations based on the harami candle.
As seen in the GBP/USD 30-min chart, the RSI crossover occurs exactly at the same time when the bullish harami appears and is above the 30 level. The MACD crossover, on the other hand, occurs even before the pattern occurs which provides a strong indication that the momentum of the bearish trend is over. Some other bullish reversal patterns include the Hammer, the Bullish Engulfing, and the Piercing Line patterns.