Introduction
Candlestick patterns have long been a staple of technical analysis in trading. Among the many patterns that traders rely on, the Bullish Harami stands out for its simplicity and effectiveness, especially when trying to identify potential reversals in a downtrend.
In this blog post, we will explain what the Bullish Harami pattern is, how to identify it, and most importantly, how to trade it effectively using real-world strategies. Whether you’re a beginner or an experienced trader, understanding this pattern can sharpen your trading decisions.
What is a Bullish Harami Pattern?
The term “Harami” originates from Japanese, meaning pregnant. The Bullish Harami is a two-candlestick reversal pattern that occurs during a downtrend and signals a potential reversal to the upside.
Structure:
- First Candle: A large bearish candle (long red/black body).
- Second Candle: A small bullish candle (small green/white body) that is entirely contained within the body of the first candle.
This formation reflects a reduction in selling pressure, hinting that the bears may be losing control and bulls could be preparing to step in.
How to Identify a Bullish Harami Pattern
To ensure accuracy, check for the following criteria:
- Existing downtrend or consistent bearish movement.
- A large bearish candle appears.
- The next day, a small bullish candle opens above the previous day’s close and closes below the previous day’s open, forming a “pregnant” look.
👉 Note: The second candle’s body must be entirely within the previous day’s body. Shadows (wicks) may extend outside.
Why the Bullish Harami Works
This pattern reflects market indecision. After a strong downtrend, the small bullish candle suggests that sellers are hesitant, and buyers are beginning to gain confidence. This change in sentiment often leads to a trend reversal or at least a temporary bounce.
How to Trade the Bullish Harami Pattern
There are several ways to trade this pattern, depending on your risk appetite and confirmation requirements.
1. Basic Entry Strategy (Conservative)
Step-by-Step:
- Wait for confirmation: Don’t jump in right after the pattern forms. Wait for the next candle to close above the high of the second candle.
- Buy Entry: After confirmation.
- Stop Loss: Just below the low of the second (small bullish) candle.
- Target: Based on recent resistance levels or using risk-reward ratio (e.g., 1:2).
Example:
Suppose you spot a Bullish Harami on a daily chart of a stock that has been in a 2-week downtrend. The third day’s candle closes above the pattern. You enter long, set a stop below the second candle, and target the last resistance.
2. Volume Confirmation Strategy
Volume is key in validating any reversal.
Strategy:
- Identify the Bullish Harami.
- Check if volume on the second candle is higher than the previous day (a sign of buyer interest).
- If the next day also shows bullish price action with decent volume, consider entering.
Stop Loss: Below the recent swing low.
Target: Use Fibonacci retracement or resistance zones.
3. Combine with RSI Oversold Conditions
Use the Relative Strength Index (RSI) to confirm oversold conditions.
Steps:
- Find a Bullish Harami in a downtrend.
- Check if RSI is below 30 (oversold).
- Enter a buy trade once a bullish candle breaks the high of the Harami pattern.
Why it works: RSI adds strength to the reversal signal.
4. Support Zone Reversal Strategy
Look for the Bullish Harami pattern near major support zones.
Steps:
- Draw horizontal support lines based on historical price action.
- When the pattern forms at or near support, it increases the probability of a reversal.
- Enter on confirmation (next candle closing higher).
Stop Loss: Slightly below the support level.
5. Use with Moving Averages (e.g., 50 EMA)
Check whether the pattern occurs near a long-term moving average, like the 50-period EMA.
Strategy:
- Price in downtrend approaches 50 EMA.
- A Bullish Harami forms at or slightly below the EMA.
- Wait for next candle to confirm the move.
- Enter long; stop below recent swing low.
6. Intraday Scalping Strategy
This is ideal for day traders.
Setup:
- Look for Bullish Harami patterns on 5-minute or 15-minute charts.
- Confirm using volume spikes and fast-moving indicators like MACD crossovers.
- Enter fast, exit with 1:1 or 1:2 risk-reward.
Important: Use tighter stops and exit quickly. This works best in highly liquid stocks or indices.
Bonus Tip: Avoid Common Mistakes
- Don’t trade in isolation: Always combine the pattern with other technical tools.
- Avoid low volume setups: A Harami without volume support is weak.
- Beware of fakeouts: Wait for a clear confirmation before entering.
Conclusion
The Bullish Harami pattern is a reliable candlestick formation that can offer high-probability reversal signals when used properly. But like all technical indicators, it should not be used in isolation.
By combining it with volume, support/resistance zones, indicators like RSI or MACD, and proper risk management, you can significantly improve your win rate.
Key Takeaways:
- Always wait for confirmation.
- Use supporting indicators and zones.
- Manage risk with disciplined stop-loss and target levels.