The red arrow points to the testing of a cluster of large volumes on September 11, formed around the low of the September 6 candle. For a cluster chart analyst, this test could have provided a long entry setup with the same profit target but significantly lower risk. According to Candle Scanner statistics, traders are more likely to see positive outcomes rather than losses when trading the harami pattern. As with pretty much anything in the finance world, harami patterns have both their benefits and their drawbacks. Don’t make the mistake of leveraging the Harami pattern to trade in a low-volume market. It can be less accurate and reliable due to the chance of erratic movements in prices.
Your goal should be to buy after the confirmation candle breaks above the high in a bullish setup or to sell when the price breaks below the low of the small candle in a bearish setup. Among them, the harami candlestick is a relatively popular pattern that traders use to identify chart reversals. Always double-check your predictions and that risk management actions can give you more control and peace of mind while trading with harami patterns and other prediction tools.
Deep Dive Into the Bullish Harami Candle Pattern
In summary, both bullish and bearish harami patterns are fairly easy to spot in the charts; the challenge is understanding the context of the pattern and if there’s a good chance that their predictions are right. The classic harami pattern is most effective on daily candlestick charts where gaps can occur. However, it is less applicable to the cryptocurrency market since coins trade 24/7. During the second low of the double bottom pattern, a bullish harami pattern appears. Simultaneously, the low of the bullish harami prints near the lower Bollinger band. The second candle gaps higher on the next day’s open and prints a small candle contained inside the first candle.
Step 4- Set Your Stop-Loss:
You should also keep tracking the market movements continuously for any volume, price, or other changes. Remember that the Harami pattern is not fully reliable on its own and you should use other technical tools or confirmation. Always watch out for trend exhaustion signs like decreasing indicators of momentum or long wicks and integrate moving averages into your analysis for confirming pattern validity. The harami candlestick pattern is one of the several patterns that is used to find bullish and reversal patterns in the market. In this article, we have looked at what the candle is and how you can use it well.
Understanding bullish and bearish harami patterns
Yes, as its name implies, the bullish harami is indeed a bullish reversal pattern. It is primarily used to signal a potential shift in market sentiment against an ongoing downtrend or to mark the end of the pullback phase in an uptrend. The accuracy of bullish harami patterns depends on how they are employed in your trading strategy. Generally, while it can work, the pattern is less accurate when used on its own. In contrast, it becomes more accurate and reliable when paired with complementary technical analysis tools (e.g., RSI, MAs, volume, etc.) to better assess the pattern’s likelihood of leading to a possible reversal.
- Volume is perhaps one of the most fundamental technical analysis tools you can use to increase your success rate in trading.
- Looking at the chart, we observe a strong upward price trend followed by a sudden, continuous decline in price, represented by red candles making lower lows.
- Additionally, the harami candles have a close resemblance to an engulfing candle.
- Still, identifying the candlestick pattern is not always a guarantee that the reversal pattern will happen.
The next progression you can make is to analyze the bullish harami candlestick pattern in conjunction with key structural levels on your candlestick charts. To illustrate, let’s use the same chart from our first example but with identified structural levels. Finally, in this fourth example, we want to illustrate how the bullish harami candlestick pattern can also lead to an indecisive outcome (where it neither lead to a bullish or bearish trend). As we can observe, there was a clear downtrend that preceded the candlestick pattern—where its first bearish candlestick even made a new low (as part of this bearish trend).
With bullish harami, traders can see that sellers are losing control and that buyers are starting to notice the potential growth of the asset and take action. Still, identifying the candlestick pattern is not always a guarantee that the reversal pattern will happen. Therefore, we recommend that you wait for a while before you enter a trade. In this, harami candle you will be waiting for confirmation that the reversal will happen. Now you can see why following these classic trading rules for the bullish and bearish harami triggered stop-losses on the AMZN chart earlier (although it could have also led to a profitable trade). The harami pattern suggests a potential trend reversal, where the smaller candle forms within the body of the previous larger candle.
Advantages of the harami candlestick pattern
Quickly design anything for you and your family—birthday cards, school flyers, budgets, social posts, videos, and more—no graphic design experience needed. Stop-losses can also be an important tool for minimizing your chance of risk and controlling the amount of money you’re comfortable losing. Gordon Scott has been an active investor and technical analyst or 20+ years. The Harami pattern has its own set of limitations and advantages that you should know more about. You’ll know that confirming or properly identifying a Harami pattern is essential in order to plan your trades accordingly. Statistics or past performance is not a guarantee of the future performance of the particular product you are considering.
Therefore, to be profitable, it’s crucial to have sound risk management in place to ensure you do not incur significant losses when the pattern fails. Finally, and perhaps the most potentially confusing, the bullish harami and inside bar formations can look similar or even identical in some scenarios. First, while both patterns consist of a long-ranged first candle and a short-ranged second candle, the color of these candles is of secondary importance for the inside bar. This is because what determines its “bullish” or “bearish” nature depends on its position on the chart, not the color of its candlesticks.
- In this case, the bearish harami indicated only a short-term pullback within a developing uptrend.
- Trading with the bullish and bearish harami candlesticks is relatively simple.
- Studies conducted by CandleScanner on S&P500 daily stock charts from 1995 to 2015 provide more promising results.
Its name derives from the Japanese word that means “pregnant” because the graphic that shows resembles a pregnant woman. Generally, the Harami pattern candlestick shows a changing trend.1 Like other Japanese patterns it too can be bullish or bearish. In short, the more information you get about the asset and market in question, the better you will be able to confidently use harami patterns in your trading strategies. Alternatively, a bearish harami pattern is a sign that buyers are losing confidence in the asset and sellers are starting to dominate the market. Additionally, patterns that regularly appear on the charts, like harami patterns, are essential to predicting price movements and subtle (or blatant) changes in market direction.
Triple Top Pattern: Definition, Formation, and How To Trade
In this example, we can see how the bullish harami candlestick pattern can also be used during a pullback phase (a temporary decline) within an established bullish trend (uptrend). Looking at the chart, we observe a strong upward price trend followed by a sudden, continuous decline in price, represented by red candles making lower lows. Then, a short-bodied bullish candle gapped up after a long-bodied bearish candle, forming the bullish harami pattern. This pattern signaled the end of the pullback phase and the start of renewed bullish momentum as the upward price trajectory resumed.
The stop-loss was triggered the next day, but the profit target was not reached for several days. In this case, the bearish harami indicated only a short-term pullback within a developing uptrend. The main volume of trades was recorded at the lower part of the September 6 candle. The start of trading at higher levels on September 9 indicated the formation of a bear trap — a signal that increases the chances of a reversal from the bottom. They are a powerful sign that the market might change its direction, whether it’s a downtrend (bearish) that’s becoming an uptrend (bullish) or vice-versa.
As such, we can consider taking a long position in anticipation of a potential upward rally that may follow. Recognizing this pattern requires a close examination of daily candlestick charts to spot potential trend reversals. Alongside its counterpart, the bearish harami, the bullish harami is one of several basic patterns that traders utilize to anticipate market movements and make informed trading decisions. However, using these indicators should be part of a broader strategy that considers multiple factors in financial markets. The bullish harami pattern signals a shift from bearish trends by showing a smaller, upward-moving candlestick within a larger downward trend on a candlestick chart.
Additionally, the harami candles have a close resemblance to an engulfing candle. The only difference is that in an engulfing, the smaller candle is usually followed by the bigger candle. Once you install the platform, you will automatically get the free START plan, which includes cryptocurrency trading and basic features. You can use this plan for as long as you like before deciding to upgrade to a more advanced plan for additional ATAS tools. You can also activate the Free Trial at any time, giving you 14 days of full access to all the platform’s features. This trial allows you to explore the benefits of higher-tier plans and make a well-informed purchasing decision.
We can also use the Moving Average Convergence Divergence (MACD) indicator as a confirmation tool when considering a trade based on the bullish harami candlestick pattern. In this example, we can observe a strong bearish trend (downtrend) where the pattern appeared. The bullish harami candlestick pattern tells us that the market sentiment is changing and that price will likely follow. In a downtrend, this could mean a complete trend reversal towards an uptrend.