The Harami Cross (Bullish) pattern is a powerful and reliable candlestick formation in technical analysis that signals a potential reversal from a downtrend to an uptrend. Understanding how to identify and trade this pattern can give traders an edge in timing entry points and managing risk effectively.
In this post, we’ll break down the Harami Cross (Bullish) pattern, explain its significance, and explore several proven strategies to trade it successfully.
What Is the Harami Cross (Bullish) Pattern?
The term “Harami” is derived from the Japanese word for “pregnant,” symbolizing the smaller candle nested inside the body of the previous larger candle. The Harami Cross variation takes this concept further by having the second candle as a Doji—a candle with little to no real body, indicating indecision in the market.
Key Characteristics:
- First candle: A large bearish (red or black) candle during a downtrend.
- Second candle: A Doji candle completely contained within the body of the first candle.
- Occurs after a clear downtrend, signaling potential exhaustion of selling pressure.
Why It’s Bullish:
The Harami Cross shows that the prior selling momentum has stalled, and neither buyers nor sellers can push price decisively in either direction. This pause often precedes a reversal or at least a temporary bounce.
How to Identify the Harami Cross (Bullish) Pattern
- Trend Context: Ensure the market is in a clear downtrend.
- First Candle: Large bearish candle showing strong selling.
- Second Candle: Doji candle whose open and close are within the first candle’s body.
- Volume: Often, a drop or increase in volume during the Doji candle adds to the significance.
Step-by-Step Guide to Trading the Harami Cross (Bullish)
Step 1: Confirm the Downtrend
Before considering the pattern, confirm the market is trending downward using tools like moving averages, trendlines, or indicators such as RSI.
Step 2: Spot the Harami Cross (Bullish) Formation
Look for the large bearish candle followed by a Doji candle completely inside the first candle’s range.
Step 3: Wait for Confirmation
Don’t jump in immediately after the Doji. Wait for a confirmation candle — usually a bullish candle closing above the Doji’s high, signaling buyers are taking control.
Step 4: Enter the Trade
Place a buy order just above the confirmation candle’s high.
Step 5: Set Stop Loss
A logical stop loss is below the low of the Doji candle or the first bearish candle to minimize risk.
Step 6: Set Profit Targets
You can use:
- Previous resistance levels.
- Fibonacci retracement zones.
- A risk-reward ratio of 1:2 or better.
Example Strategies Using the Harami Cross (Bullish)
1. Basic Harami Cross Entry with Confirmation
- Setup: Downtrend, Harami Cross forms.
- Entry: Buy when a candle closes above the Doji’s high.
- Stop Loss: Below the Doji low.
- Target: Previous swing high or a fixed 2:1 reward-to-risk.
Example:
Stock XYZ is in a downtrend. A large red candle is followed by a Doji inside it. The next candle closes above the Doji’s high at $50. Buy at $50.10, stop loss at $48.90 (below Doji low), and target $54.
2. Harami Cross with RSI Oversold Confirmation
- Use the Harami Cross pattern only when RSI (Relative Strength Index) is below 30, indicating oversold conditions.
- This adds strength to the reversal signal.
Example:
In the stock ABC, during a downtrend, the RSI drops to 28. A Harami Cross forms. Enter long after confirmation candle closes above Doji. The RSI being oversold suggests strong rebound potential.
3. Combining Harami Cross with Support Zone
- Look for a Harami Cross forming near a major support level (previous lows or trendline support).
- The confluence of support and the pattern increases the probability of reversal.
Example:
Crypto coin DEF is falling toward a strong support at $100. The Harami Cross forms at this level, followed by a bullish confirmation candle. Enter trade here for a safer long position.
4. Multiple Time Frame Confirmation Strategy
- Identify the Harami Cross on a higher timeframe (daily or 4-hour).
- Confirm trend reversal signals on a lower timeframe (15-min or 1-hour).
- This method improves entry precision and reduces false signals.
5. Using Moving Averages for Confirmation
- Use a short-term moving average (e.g., 10 SMA).
- Enter the trade when the price closes above the confirmation candle and the 10 SMA starts sloping upwards.
- This ensures momentum supports the reversal.
Risk Management Tips for Trading Harami Cross
- Never enter without confirmation — the Doji alone is not enough.
- Use proper position sizing based on stop loss distance.
- Avoid trading in highly volatile news events where candlestick patterns can fail.
- Combine with other indicators or volume for stronger signals.
Common Mistakes to Avoid
- Trading the Harami Cross without confirming the prior trend.
- Ignoring volume — a Harami Cross on very low volume may not be reliable.
- Entering immediately after the Doji without waiting for confirmation.
- Using the pattern in sideways or choppy markets where it’s less effective.
Conclusion
The Harami Cross (Bullish) pattern is a valuable tool for traders seeking to spot early trend reversals during downtrends. By combining it with confirmation candles, trend analysis, indicators like RSI, support/resistance zones, and proper risk management, you can create robust trading strategies.
Remember, no single pattern works perfectly all the time — always confirm and manage risk carefully. With practice and discipline, trading the Harami Cross can become a powerful addition to your technical analysis toolkit.