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

The idea here is to trade pullbacks to the moving average when the price is on an uptrend. Everything that you need to know about the Bullish Harami candlestick pattern is here. In this trading strategy, we will combine the harami with bollinger bands.

Since harami patterns are known to indicate potential trend reversals and continuations, traders are provided with a low-risk entry price point compared to entering a trade at the peak of a moving trend. Investors looking to identify harami patterns must first look for daily market performance reported in candlestick charts. With that said, we can see that the two patterns are a complete mirror of each other. 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).

Multiple Candlestick Patterns (Part

This article aims to analyze the Bearish Harami pattern and its integration into algorithmic trading strategies. It will examine the potential benefits and challenges and introduce techniques to improve the pattern’s reliability. Ultimately, the goal is to provide traders with insights on how to effectively incorporate the Bearish Harami pattern into a robust trading strategy. All ranks are out of 103 candlestick patterns with the top performer ranking 1. “Best” means the highest rated of the four combinations of bull/bear market, up/down breakouts.

A bullish harami is a candlestick chart signal that indicates the end of a bearish trend. A bullish harami may be described by some investors as a signal to place a long position on an asset. Now that we have covered the basics of the harami candlestick pattern, it’s now time to dive into tradeable strategies.

What Is a Bearish Harami Candle Pattern?

When you spot a Harami candlestick pattern, the key here is to use the moving average to set an entry point. Traders may also watch other technical indicators, such as the relative strength index (RSI) moving up from oversold territory, or confirmation of a move higher from other indicators. Lastly, continuously monitor the market for changes in price, volume, and other indicators. Traders should be prepared to adjust stop-loss or take-profit levels based on market conditions.

Harami candlestick trading with indicators

1. Both the disadvantages stem from the bullish harami pattern’s tendency to produce false positive signals from time to time.
2. A gravestone doji forms when the price opens and closes at the lower end of the candle.
3. Upon analyzing the daily chart, it becomes apparent that an uptrend has been in progress since the end of September.
4. The psychology of the bearish harami is understood by analyzing the candles involved in this pattern.
5. You should consider whether you can afford to take the high risk of losing your money.

My book,Encyclopedia of Candlestick Charts,pictured on the left, takes an in-depth look at candlesticks, including performance statistics. This implies no indicators, oscillators, or moving averages, among other things. When we trade on price movement, we are completely reliant on the chart’s price action. Depending on the strength of the trend, different levels are more likely to work better with the Bullish Harami pattern.

While a Doji can indicate a potential reversal, it’s not as strong a bearish signal as the Bearish Harami. Fibonacci Retracements are another essential tool to use alongside the Bullish Harami pattern. These retracements help identify potential support and resistance levels based on the Fibonacci sequence. Trading the Bullish Harami pattern on naked charts means you’re focusing solely on price action without using any indicators or technical tools. A candlestick chart typically represents the price data of stock on a single day, including opening price, closing price, high price, and low price. A sell signal could be triggered when the day after the bearish Harami occurred, the price fell even further down, closing below the upward support trendline.

The first candlestick is a long down candle (typically colored black or red) which indicates that the sellers are in control. The second candle, the doji, has a narrow range and opens above the previous day’s close. The doji must be completely contained with the real body of the previous candle. 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.

Enter a Bullish Harami trade cautiously, ideally after the next candlestick closes higher, confirming the reversal. Using tools like RSI or moving averages can provide additional confirmation, ensuring that the pattern’s signal is strong before making an entry. So, this pattern signals that the bear market is weakening and that a bullish reversal is just around the corner. The bullish harami is particularly significant when it forms at a support level, where prices have historically tended to bounce back.

For example, if the price is still declining while the RSI begins to rise, the price will likely follow the RSI’s reversal signal. To illustrate, we observe a clear bearish trend (downtrend) preceding the pattern’s appearance. Then, the RSI rose despite the price hitting a new low (represented by the pattern’s first candle—a long-bodied bearish candle). This RSI divergence, therefore, supports the potential for a bullish reversal when the second candle—a much smaller bullish candle—gaps up above the first candle and completes the bullish harami pattern. The next progression you can make is to analyze the bullish harami candlestick pattern in conjunction with key structural levels on your candlestick charts.

Like the Bullish Harami, the Bearish Harami pattern includes a small real body, or spinning top, within a long red or green body, which the Japanese call a harami, meaning “pregnant” in their language. However, in the Bearish Harami, the first candle is long, while the second is short. Additionally, the second real body is contained within the first real body, even if the shadow of the second candle is taller.

The success rate of the bullish harami candlestick pattern is approximately harami candlestick around 53%. It is because of the success rate of 53% that it is advisable to act on the bullish harami signal after confirming with other technical indicators such as the MACD or the RSI. The accuracy of the bullish harami patterns can be improved using other technical indicators with them.

1. To mitigate these risks, incorporating complementary trading techniques and tools is crucial.
2. Bullish and bearish haramis are among a handful of basic candlestick patterns, including bullish and bearish crosses, evening stars, rising threes, and engulfing patterns.
3. A Bullish Harami appearing after this bearish move is a sign of a possible reversal to the upside.
4. A bearish harami candlestick pattern indicates a potential trend reversal from bullish to bearish.
5. Despite being classified as a bullish pattern, the bullish harami lacks the “immediate” strength observed in other bullish reversal patterns.
6. When other technical indicators confirm the setup, it can be used as a signal to enter a long position in the market.

Yet, according to our in-house trading expert Al Hill, if he had to pick a strategy, he’d prefer trading haramis with bollinger bands. On that token, the next price increase confirms the double bottom pattern and the price closes outside of the downtrend channel, which has held the price down the entire trading day. In addition, with the next two red candles we confirm a Three Black Crows candle pattern, shown in the green circle. During a bullish move, the harami candlestick indicator tells us that strength in the previous candle is dissipating. A bullish hammer candlestick pattern indicates a potential bullish reversal in the market. Hammer pattern is named after its shape which looks similar to an actual hammer.