Bullish Harami Pattern: Reversing Bearish Trends Explained
In high-volatility markets, the Bullish Harami may produce false signals, as strong price swings can cause quick breakouts in both directions. This pattern can carry more weight in low-volatility environments, as price action tends to be more controlled and less erratic. I found out that one of its strengths is its capacity to flag trend reversal. It is useful to the trader, who wants to establish a long position at the beginning of an upward trend. The decision to use just two candles and therefore, a simple TA chart requires no middle of the road trader efforts.
What Market Conditions Are Most Favorable for the Bullish Harami Pattern?
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- Interestingly, the term ‘harami’ comes from a Japanese word that means ‘pregnant’ due to the pattern’s likeness to a pregnant woman.
- 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.
- To illustrate, we observe a bearish trend (downtrend) preceding the candlestick pattern.
- It indicates that bearish momentum is slowing, but reversal confirmation from the next candle or other indicators is crucial before taking action.
- The next illustration is on the weekly chart of oil, which demonstrates the harami as a continuation pattern (as it’s on or near the trendline).
Yes, the Bullish Harami patterns reliably predict market direction 56% of the time, making it good for a consistent 0.58% per trade profit. The Bullish Harami Cross is more reliable than the Bullish Harami, so we recommend the cross version. The percentage of Bullish Harami winning trades was 55.2% versus 44.8% losing trades, lower than the 55.8% average performance across all candlestick types. The Max Drawdown was -41.5%, versus the stock’s drawdown of -59.6%, which shows less volatility than a buy-and-hold strategy. When spotting a Bullish Harami Cross, there should be a downtrend and a bearish candle encompassing a bullish harami candle smaller bullish candle with a long wick, ideally a Doji or Spinning Top. When identifying a Bullish Harami, there should be a prevailing downtrend and a bearish candle encompassing a smaller bullish candle.
The psychology behind the bullish harami means that price action is in a downtrend with the bears in control. The small bullish candlestick inside the bearish one indicates that the bulls are attempting to regain control from the bears. As the price breaks above the bullish candlestick, you would take a long entry and place your stop-loss below the base. This approach works best when you’ve other supporting factors, such as oversold RSI readings or strong support levels nearby. Some traders prefer placing their stop below the low of the baby candle to reduce their risk per trade. However, it also increases the chances of their stops being triggered by normal market noise.
What Is The Meaning Of The Bullish Harami Candlestick Pattern?
- The Bullish Harami pattern occurs after a downtrend and becomes more significant the more the market has gone down.
- Yes, it is possible to improve the accuracy of bullish harami patterns.
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- A bullish harami candlestick is a price chart pattern that signals trend reversals in an ongoing bear market.
The reason these win percentages are lower may be due to how relatively common the harami is. Here, we have the harami near a point of a trend line break (something alluded to earlier as crucial when identifying the pattern). Let’s look at some real-world examples of the bullish harami with a few of the aspects already discussed. A big clue of a continuing downtrend was when the next candle gapped down below the low of the first candle of the harami.
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The Bullish Harami pattern is confirmed by the White Candle, which is located above the trendline. The one should be careful when the first line of a Bullish Harami has a long black body as it may form a strong resistance zone. The second line can be any white basic candle, appearing both as a long or a short line. The Bullish Harami is a two-line pattern which the black candle’s body of the first line engulfs the white candle’s body of the second line.