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. Watch our video on how to identify and trade bullish harami patterns.
What Is a Bullish Harami Pattern & How to Identify These Patterns?
A bullish harami pattern consists of two candlesticks that form near support levels where the 2nd candle fits inside the larger 1st bearish candle. Typically, when the 2nd smaller candle fits inside the first, price causes a bullish reversal.
These patterns are two candlestick patterns found on stock charts. The bullish harami pattern signals the reversal of a bearish downtrend. Watch our video above to learn more about how to trade them.Bullish haramis are common and learning how to spot them is important. Candlesticks tell a story and this two day pattern is no different. We get our Japanese candlesticks chart patterns from a 17th century rice trader by the name of Homma.
He developed candlesticks as a way to help gauge the emotions of commodities traders. Even in the 17th century, emotions moved their markets. To this day, we still use his methods.
The stock market is a fight between buyers and sellers. Each group wants control. That fight for control makes up the patterns we trade as well as the different candlesticks. There are many different kinds of candlesticks such as hammer candlesticks or hanging man candlesticks.
Learn what the different candlesticks are and what they mean. Knowing that information helps to simplify charts and trading.
Basics of Bullish Harami Patterns
Bullish harami patterns consist of 2 candlesticks, a large one followed by a small one. The small candle should be located within the vertical range of the first one (bookmark our penny stocks list and stock watch lists pages, which are updated daily).
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. If you drew an outline of the pattern, it looks like a pregnant woman.
One could even say its a bullish pregnancy. 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 you should 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. We teach how to trade candlesticks in our trading rooms. Check out our trading service to learn more.
Technicals of Bullish Harami Patterns
Candlesticks group together to form patterns. They make up large and small ones. Bullish harami candlesticks can be a part of a larger pattern such as symmetrical triangle patterns. You need to know what larger patterns look like and what they mean (try our stock picks service free).
Smaller 2 day patterns like the bullish harami may not always form a significant reversal as you saw in the chart above. A lot of doji candlesticks formed after the initial pattern. It was almost like the stock didn’t know 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.
Bullish harami candlesticks are one of the more common patterns on charts. With this in mind, look at the technical indicators. This is a reversal pattern that forms in a downtrend.
What is RSI telling you? Is it oversold? Is the MACD making a bullish cross? Where is price at in regards to the moving average lines?
These are important questions to ask yourself as well as important indicators to look at. Not only do indicators like MACD and RSI give buy and sell signals, moving average lines can act as support and resistance.
How to Trade Bullish Harami Patterns
- 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
The Bottom Line
Bullish harami patterns are common 2 day candlestick patterns found on stock charts. Since this is a reversal pattern swing trading strategies can be useful to trade bullish haramis. Sometimes the reversal lasts a couple days. Sometimes a couple weeks.
Studying and practicing how to trade this pattern is a smart thing to do. Not only will you be able to spot and trade patterns you can also work out the kinks. Ninety percent of traders fail because they don’t take the time to study or practice.
Even with all the time spent studying and practicing, you’ll still have losing trades and that’s ok. You’ll know how to minimize loss and keep your emotions under control. Trading is hard but it’s also rewarding. Take our free online trading courses.