Still, the best approach to use the harami pattern is to combine it with several parts of technical indicators like moving averages and Bollinger Bands. You can look at this article to see some of the most common reversal indicators you can use in the market. A pending order is where you open a trade that will only be initiated when a certain condition is met. In case of a bullish harami, you could place a buy-stop above the upper shadow of the mother candlestick. Here, the bullish trade will be initiated if the price moves above the shadow.

Bullish and Bearish harami pattern: How to Identify on the Chart and Use in Trading

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. Both harami patterns begin with a long-ranged candle and end with a small second candle that is contained within the first. Additionally, both harami patterns signal trend reversals, albeit on opposite sides. Harami is a type of Japanese candlestick pattern represented by two bodies, the first of them, larger, with black or red body and the second one, white or green.

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This formation suggests a potential market reversal, offering an entry point for traders considering long positions. One of the most flexible indicators, moving averages, can serve multiple purposes when a bullish harami pattern appears on the price chart. To illustrate, we observe a bearish trend (downtrend) preceding the candlestick pattern. In this case, we use one of the most common short-term MAs, the 9-day Exponential Moving Average (9 EMA), as our dynamic resistance level. In that category, the harami candlestick patterns are two famous patterns that can indicate a reversal in the previous trend of the market. They are the bullish and bearish harami patterns, and in this article, we will explain how you can identify them and start using them in your trading strategies.

The next progression you can make is to analyze the bullish harami candlestick pattern in conjunction with key structural levels on your candlestick charts. To illustrate, let’s use the same chart harami candle from our first example but with identified structural levels. Finally, in this fourth example, we want to illustrate how the bullish harami candlestick pattern can also lead to an indecisive outcome (where it neither lead to a bullish or bearish trend). As we can observe, there was a clear downtrend that preceded the candlestick pattern—where its first bearish candlestick even made a new low (as part of this bearish trend).

This is because other candlestick patterns, such as the bullish engulfing, provide more decisive bullish trend reversals. The bullish harami can offer early signs of a possible reversal into a potential uptrend or mark the end of a pullback. This is because this bullish pattern can form after a single bullish session. Well, the pattern’s first candle is technically still part of the bearish trend and, in fact, often signals a continuation of downward momentum—being a long-bodied bearish candle.

Bullish Harami Candlestick Pattern Trading Strategies

As a result, compared to harami patterns, an inside bar can have two candles of the same color (in fact, two bearish candles can be considered a bullish signal, and vice versa, depending on their position on the chart). The bullish harami is relatively weaker than other comparable candlestick patterns when used in isolation. For instance, a tweezer bottom—which is also a two-candlestick bullish reversal pattern—can effectively show a clear rejection of lower prices. In contrast, the bullish harami can simply be a sign of momentary pause unless accompanied by a complementary indicator or viewed within the broader market context for confirmation. You can also use pivot points to automatically identify potential key price levels to monitor.

A trader would wait for confirmation of a continued rally before enter the position. A bullish harami is made of a large bullish candlestick that is followed by a small bearish candlestick. On the other hand, a bearish harami is made up of a large bearish candle that is followed by a small bullish candle. The Harami candlestick pattern is a Japanese candlestick formation indicated by two bodies. The pattern indicates a change in trends or a potential reversal of prices.

In this illustration, we observe a bearish trend (downtrend) leading to the formation of a bullish harami pattern. By generating pivot points, we can identify the nearest suggested support level (S1) and resistance level (R1). Immediately, you can see that we now have a better understanding of the overall price context.

Because the bullish harami pattern’s second candle is often much smaller, it typically allows for a close cut-loss point relative to your entry. This setup enables a low-risk play, compensating for the pattern’s lower success rate than similar candlestick patterns (which will be discussed in the disadvantages section). Therefore, this drastically reduces the chance of incurring significant losses, as you can immediately cut your losses short (this is one of the most crucial trading techniques to be profitable).

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This is especially true when it occurs at a price level that lacks significance or when the confirmation tool you use does not align with the reversal signal. For momentum traders who rely on swift, aggressive moves, the bullish harami may appear too weak or slow in indicating a reversal, especially compared to stronger patterns like bullish engulfing or piercing patterns. A final tip is to start training your trader eyes at seeing harami patterns in a demo account before trying them in live markets. By doing that, you will get more confidence in applying what you learned here in your strategies and will reduce the chances of falling prey to a false positive.

Keep in mind what gains could be enough for you in this particular market. Based on the patterns, traders can decide the best moment to buy or sell the asset, ensuring they enter or exit the market at the best possible time. An appearance of a harami pattern is a clear visual sign that the market is in an in-between moment, getting ready for a possible reversal of the previous trend. You can test how successful your harami and cluster trading strategies could be by using the ATAS Market Replay simulator. This platform module uses historical data to recreate real-time trading conditions, enabling you to sharpen your trading skills without any financial risk. The red arrow marks a pattern that could have become a bearish harami if the lower shadow had been shorter.

Trading The Bullish Harami Pattern with Fibonacci Retracements

In summary, both bullish and bearish harami patterns are fairly easy to spot in the charts; the challenge is understanding the context of the pattern and if there’s a good chance that their predictions are right. The classic harami pattern is most effective on daily candlestick charts where gaps can occur. However, it is less applicable to the cryptocurrency market since coins trade 24/7. During the second low of the double bottom pattern, a bullish harami pattern appears. Simultaneously, the low of the bullish harami prints near the lower Bollinger band. The second candle gaps higher on the next day’s open and prints a small candle contained inside the first candle.

• For a cluster chart analyst, this test could have provided a long entry setup with the same profit target but significantly lower risk.
• For momentum traders who rely on swift, aggressive moves, the bullish harami may appear too weak or slow in indicating a reversal, especially compared to stronger patterns like bullish engulfing or piercing patterns.
• You should also keep tracking the market movements continuously for any volume, price, or other changes.
• The pattern indicates a change in trends or a potential reversal of prices.
• To improve trading accuracy with harami patterns, it is recommended to use additional tools and approaches, such as footprint pattern analysis.

Finally, there is the risk of mistakenly confusing an inside bar with a bullish harami. This is particularly common among newer traders who have yet to gain enough experience to effectively differentiate between the two patterns. Key market levels like support or resistance levels are crucial to make sure that the pattern is a strong indication of a change. You can also make sure you set take-profits exploring the historical resistance or support levels of the asset.

• However, for the pattern to be valid, it must either occur in an existing downtrend that is actively making lower lows or during the pullback phase (a temporary market decline) of an uptrend.
• Both harami patterns begin with a long-ranged candle and end with a small second candle that is contained within the first.
• Gordon Scott has been an active investor and technical analyst or 20+ years.
• You can also make sure you set take-profits exploring the historical resistance or support levels of the asset.
• You’ll know that confirming or properly identifying a Harami pattern is essential in order to plan your trades accordingly.

We can also use the Moving Average Convergence Divergence (MACD) indicator as a confirmation tool when considering a trade based on the bullish harami candlestick pattern. In this example, we can observe a strong bearish trend (downtrend) where the pattern appeared. The bullish harami candlestick pattern tells us that the market sentiment is changing and that price will likely follow. In a downtrend, this could mean a complete trend reversal towards an uptrend.

However, for the pattern to be valid, it must either occur in an existing downtrend that is actively making lower lows or during the pullback phase (a temporary market decline) of an uptrend. For instance, if a bullish harami appears next to a support level, it’s more reliable that the price will actually go higher like the pattern predicts. In a similar manner, if a bearish harami appears near a resistance zone, it might be a strong clue that the price has reached its limit and will indeed start falling according to the pattern. The first two black candles indicate a two-day downward trend in the asset, and the white candle represents a slightly upward trend on the third day, which is completely contained by the body of the previous candle. Investors seeing this bullish harami may be encouraged by this diagram, as it can signal a reversal in the market. While CandleScanner data shows a false signal in 19% of cases, research by Thomas Bulkowski suggests it fails 47% of the time.

Trading The Bullish Harami Pattern With Moving Averages (MAs)

With bullish harami, traders can see that sellers are losing control and that buyers are starting to notice the potential growth of the asset and take action. Still, identifying the candlestick pattern is not always a guarantee that the reversal pattern will happen. Therefore, we recommend that you wait for a while before you enter a trade. In this, you will be waiting for confirmation that the reversal will happen. Now you can see why following these classic trading rules for the bullish and bearish harami triggered stop-losses on the AMZN chart earlier (although it could have also led to a profitable trade). The harami pattern suggests a potential trend reversal, where the smaller candle forms within the body of the previous larger candle.

A closer look shows that the two sticks have a close resemblance to a pregnant woman. The harami is a reversal pattern that signals a possible change in the trend’s direction. ✓   the bullish harami suggests that the trend will shift to an upward movement;   ✓   the bearish harami indicates that prices may move downward. It’s important to note that the bullish harami can sometimes indicate only a temporary pause in its downward path rather than a full reversal.

The harami pattern suggests a potential reversal of the current trend, signaling a shift in market sentiment. A bearish harami points to a possible transition from a bullish to a bearish trend, while a bullish harami indicates the opposite. Unfortunately, the bullish trend (uptrend) failed to materialize, and the trend continued downward. 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.