What Is a Harami Candle? Example Charts Help You Interpret Trend Reversal

The second Harami pattern shown in Chart 2 above is a bearish reversal Harami which could also trigger a buy signal. Day 2 showed a bearish candlestick which made the bearish Harami look even more bearish. The strategic alignment of candles in the Harami Cross indicates a possible faltering in bearish momentum, potentially leading to an upward market correction. Spotting this pattern, particularly the green doji can be a key indicator for traders to consider initiating long positions, anticipating a forthcoming market upswing. The bearish harami pattern appears at the top end of an uptrend, allowing the trader to initiate a short trade. This article explains the bullish harami candlestick, showing you how to identify it and trade it effectively, both with and without the use of indicators.

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. 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. While the bullish harami pattern can be helpful in identifying potential trend reversals, traders never rely solely on it when making trading decisions.

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This can be particularly useful in Forex trading, where news events frequently cause abrupt price movements. Harami patterns are versatile enough to be applied across different types of currency pairs (like major, minor, and exotic) and can even be used in different asset classes (like equities, CFDs, and more). Hence, trades can use the pattern to trade different markets in different timeframes.

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1. It’s a visual representation of market sentiment evolving from one extreme to another, making it a valuable tool for traders seeking to anticipate trend reversals.
2. If the preceding trend has been prolonged, that might signal a stronger reversal than a short-term reversal.
3. Firstly, investors and traders must look for the bullish harami at the end of a prolonged bearish trend.
4. A rise above the open of the first candle helps confirm that the price may be heading higher.
5. Harami patterns are of two kinds namely the bearish harami and the bullish harami.
6. This confirmation comes if the third or fourth candlestick is bullish and closes above the prior bullish candlestick.

A market analyst and member of the Research Team for the Arab region at XS.com, with diplomas in business management and market economics. Since 2006, she has specialized in technical, fundamental, and economic analysis of financial markets. Known for her economic reports and analyses, she covers financial assets, market news, and company evaluations.

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1. 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.
2. Harami Patterns are the reversal patterns that frequently appear in a trending market.
3. The bullish harami candlestick pattern signals that the bulls are gaining control of the market and that asset prices are on the rise.
4. Combining bullish crossovers on the MACD with RSI exiting oversold territory serves as convincing evidence upside conviction is building after the harumi’s indication of seller fatigue.
5. Trading with the bullish harami candlestick involves making trade entries following the confirmation candlesticks.
6. Unlike other technical indicators, RSI can act as a leading indicator when it diverges from price.

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RSI below 30 signals oversold conditions aligning with reversal potential. As RSI trends upward following the pattern, downside exhaustion, and emerging upside strength is implied. The risk-taker will initiate the trade on day 2, near the closing price of 125. The risk-averse will initiate the trade on the day after P2, only after ensuring it forms a red candle day. In the above example, the risk-averse would have avoided the trade completely. Fibonacci Retracements are another essential tool to use alongside the Bullish Harami pattern.

Yes, the bullish harami works as a reversal pattern to initiate a potential uptrend (from a downtrend) or continue upward momentum (from a pullback). Therefore, to be bullish harami candle profitable, it’s crucial to have sound risk management in place to ensure you do not incur significant losses when the pattern fails. 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). The bullish harami can offer early signs of a possible reversal into a potential uptrend or mark the end of a pullback.

There are two types of harami patterns – the bullish harami and the bearish harami. Other advantages of the bullish harami pattern include its ability to combine well with simple momentum-based technical indicators such as the MACD and the RSI. The bullish harami is also a pattern that frequently appears in price charts, making it easier to spot them. The two main disadvantages of the bullish harami include the need for trend confirmation while using it and its inability to be used in isolation. Other commonly used candlestick patterns include spinning top, shooting star, hammer, hanging man, and evening star.

Usually, the second candlestick will be the opposite color of the first candlestick, but not always. The best average move 10 days after the breakout is a rise of 4.05% in a bear market. The move also gives a 10-day performance rank of 45, whichis mid list between 1 (best) and 103 (worst).