Bullish harami patterns are a two candlestick pattern. They typically take place at the bottom of downtrends and signal a reversal. The first candle is a bigger bearish candle followed by a second smaller bullish candle that’s contained within the bearish candle. The word harami means pregnant, so picture this visual when looking at the pattern because the small candle looks like the belly of the candle. Look for price to break above small candle to confirm bullish continuation.
A bullish harami pattern consists of two candlesticks that form near support levels where the second candle fits inside the larger first bearish candle. Typically, when the second smaller candle fits inside the first, the price causes a bullish reversal.
Bullish harami patterns consist of 2 candlesticks. A large candle followed by a smaller one; the small candle should be located within the vertical range of the first one.
In other words, the bullish harami candlesticks pattern has a large bearish candle engulfing a small bullish candle. The word harami is a Japanese word for pregnant; outline of the pattern looks like a pregnant woman.
The stock is in a downtrend but is pregnant with a bullish reversal. When the bullish harami candle forms, the birth happens and the trend changes.
Since this formation gives a reversal signal, it may be a good time to enter a long position. As always look for confirmation instead of assuming a reversal is happening. News, earnings, greed, and fear can change the direction of a stock within a matter of seconds.
How to Trade Bullish Harami Patterns
- Watch for 1st falling bearish candlestick to form
- Next, watch for 2nd smaller candlestick to fit inside 1st candle
- Then, watch for 3rd candlestick to break above 2nd
- Traders take a long position once price breaks above the 2nd candlestick
- Place stop below the base of the 2nd candle
- Some traders take a short position once price falls below 2nd candle
- Then place stop above the 2nd candle
Bullish harami candlesticks can be a part of a larger pattern such as symmetrical triangle patterns. Smaller 2 day patterns like the bullish harami may not always form a significant reversal; doji candlesticks can form after the initial pattern sometimes creating confusion. It is important to wait for a clear direction; sometimes a stock can just chop around and consolidate in an area for a bit as it is figuring out where to go.
Sometimes small bearish patterns can form in large bullish patterns and visa versa. That may affect the outcome of the small patterns.
Patterns, no matter their size, break down all the time. Using technical analysis in conjunction with patterns is helpful in gauging moves.