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. To effectively leverage the bullish harami cross in trading, it is important to break down its components into individual elements. Each part of the pattern plays a distinct role in its formation and interpretation, offering insights into potential market reversals. While the Bullish Harami signals a possible change from a downtrend to an uptrend, the Bearish Harami suggests a switch from an uptrend to a downtrend.

While this can suggest a shift in market momentum, it is not always the case — research shows that 16% to 53% of harami trades can result in losses. While CandleScanner data shows a false signal in 19% of cases, research by Thomas Bulkowski suggests it fails 47% of the time. To improve trading accuracy with harami patterns, it is recommended to use additional tools and approaches, such as footprint pattern analysis.

In the Case That Bullish Harami Pattern Doesn’t Work, How Can the Trader Come Up with the Right Approach to Use?

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. The Harami pattern is one of the most versatile and dynamic candlestick patterns that you will come across. However, you have to watch out for the bullish/bearish formation and the strong trend reversal indicator before trading. The key aspect here is to confirm the pattern carefully before moving ahead, since it is highly susceptible to false signals.

Bearish and bullish harami bullish harami patterns involve trading against the trend, making it essential to arm yourself with additional tools. The best approach is to use cluster charts, which offer rich insights and allow you to decode the market signals hidden within the harami candles. More attention should be paid to how these candles work in conjunction with one another. The lower real body indicates there is an opposite direction, the small bullish within bearish candle shows that there might be a change in the market trend. During this formation, calculating volume is also crucial; high volume adds more credibility to the pattern, arguing that more buyers are participating. In this case though, it is recommended to support or even confirm the bullish harami with other technical indicators and/or market analysis for the results to be a bit more accurate.

While it is a relatively weak reversal signal on its own, the double top pattern can also generate false signals, particularly during periods of volatile or ranging markets. Traders using this pattern alone may be enticed to place a trade that will not result in lasting reversal and therefore lose money. Continuation candlestick patterns are those that represent the continuation of the existing active trend. Examples of continuation candlestick patterns include doji, spinning top, high wave, falling window, rising three methods, falling three methods etc. All in all, the bullish harami pattern is a sign that bulls managed to not only make the market gap to the upside, but also hold that level for the rest of the day. You also must know the prevailing price trend when looking for a bullish harami pattern.

Timeframe Variations

• This bullish harami was made more potent by the rest of the market putting their backing behind it.
• Those who saw the bullish harami pattern would have regarded it as a good opportunity to buy the security.
• Secondly, investors and traders must spot the two candlestick pattern formation that satisfies the conditions of the bullish harami.
• The accuracy of the bullish harami patterns can be improved using other technical indicators with them.
• 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.
• A bearish harami cross is a variation of the bearish harami pattern where the second candle is a doji, meaning its opening and closing prices are almost at the same level.

Its distinctive shape which resembles a pregnant woman aids in its quick identification. Investors and traders usually use the bullish harami candlestick pattern with technical indicators like the MACD and RSI to cross-check and confirm the signals the harami pattern produces. Using technical indicators along with the bullish harami candlestick pattern prevents incurring losses or limits the loss incurred.

• The preceding candle in the bullish harami cross pattern is typically large and bearish, indicating a downtrend.
• Each part of the pattern plays a distinct role in its formation and interpretation, offering insights into potential market reversals.
• On this front, another disadvantage of bubble charts is that it is often hard to know the strength of the reversal or how long it will last.
• The image shows that the third candlestick of the pattern is a bullish candlestick confirming the trend reversal.
• The alternate inside bottom blasts this candle and provides the required backdrop for the pattern.
• In case it fails traders should employ their stop losses below the low of the larger bearish candle in order to cut their losses.

How to Trade the Bullish Harami Candlestick Pattern

The bullish harami pattern is taken as confirmation of a slowing down of the downward trend and a potential change in the trend’s direction among traders. It is particularly strong when it comes after a long period of decline, which may signal that the low has been reached. But it is important to check this kind of pattern with other technical parameters and conditions in the market before getting involved in it. One of the main advantages of the bullish harami pattern is the ease of spotting it on a price chart.

On the other hand, one can employ the resistance levels or moving averages to give natural exits. Don’t make the mistake of leveraging the Harami pattern to trade in a low-volume market. It can be less accurate and reliable due to the chance of erratic movements in prices. A lowering volume indicates a weakening bearish movement while increasing volumes indicate weakening bullish trends. 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.

Understanding Market Structure and Market Structure Shift (MSS)

For a cluster chart analyst, this test could have provided a long entry setup with the same profit target but significantly lower risk. The main risk is that the small candle may not signal a full reversal but rather a temporary pullback, with the trend possibly continuing afterward. Earlier we talked about how a bullish harami could be improved by taking volatility into account. When this pattern appears, it often signifies a temporary pause in the trend rather than a full reversal.

This example highlights how developing skills in cluster chart analysis can elevate your candlestick pattern trading, even if you find these patterns outdated. 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.

Example of Trading a Bullish Harami Pattern in the SPY Market

Ideally, candle 6 should have formed at the bottom of the decline for a perfect setup. It consists of a large bullish candle followed by a smaller bearish candle contained within the first one. It is more powerful when used alongside other technical indicators for instance volume breakout, RSI, and moving averages such as the exponentially weighted moving average. These tools add to the confidence in the pattern detected and also reaffirm the existence of reversal signals, which in turn give better qualities to the trading signals. For entry points one can enter a bull market once the pattern is formed and typically once the price goes above the high of the small bullish candle.

How to Confirm a Harami Pattern

There are mainly three differences between the bullish harami and bearish harami candlesticks which are listed in the table below. The frequency rank of twenty-five implies that the pattern appears frequently enough to be spotted easily on price charts. Discover how the Bullish Harami Cross pattern aids traders in identifying potential market reversals and enhancing trading strategies.

What is a Harami Candlestick Pattern?

According to Candle Scanner statistics, traders are more likely to see positive outcomes rather than losses when trading the harami pattern. To sum it up, even though the bullish harami can be helpful when it is particularly valuable, it cannot be the only approach. Applying it in conjunction with other parameters and incorporating stock alerts together with strong risk control should improve the decision-making and consequently the trading results. This is the biggest mistake that you can make, i.e. relying only on the formation of the pattern.

This bullish harami was made more potent by the rest of the market putting their backing behind it. Though they both missed on earnings estimates, shares of both Apple and Tesla increased shortly after because the earnings estimate for Q1 was low. A major positive change of sentiment ensued and this drove quite a bullish run that seems to efface the previous downtrend in line with the bullish engulfing candle.

It is relatively easy to establish and quit and therefore is available to both those using the marketplace for the first time and regular users. The pattern can also give fresh long entries based on the change in sentiment that comes with the formation of the pattern. A small bullish candle was formed that was completely engulfed by the large bearish candle of the previous day to form a perfect bullish harami. This pattern signaled a bullish reversal to the strife that was currently evident on the chart, which could mean that the particular stock might be oversold. It gives a possible hint of having bottomed up the bearish trend with careful accumulation of bargains in the stock market.