Bullish Harami Candlestick Pattern Definition
A bullish harami is a candlestick pattern that indicates a bottom when it is preceded by a fall. It is a two-candle bullish reversal pattern. The first candle has a relatively large red body (bearish) and the second one has a smaller white body (bullish) that’s contained within the body of the first candle. This is also known as an 'inside day' pattern. The upper and lower shadow lines of the second candle are short and should also fall within the body of the first candle.
This combination tells us a number of things :
- The opening price of the second candle is higher than the closing price of the first bearish candle, so the day starts with a gap up and buyers are gaining control.
- The rest of the trading session, buyers and sellers more or less keep each other in balance. A slightly positive closing price is a sign that buyers, after the initial gap up, have maintained control. However, there was not yet enough momentum to raise the price above the opening price of the previous day. As a result we see an 'inside candle'.
Just like the Bullish Engulfing Pattern, a Bullish Harami pattern is a reversal pattern. It is an indication that the current existing downward trend (short or long term) is coming to an end and a positive trend reversal is imminent.
Please keep in mind that the pattern in itself is only an indication of a change of direction, but is by no means sufficient on its own to be used arbitrarily as an entry setup.
Bullish Harami Example
The graph above shows two nice bullish harami setups (green circles) but at least as important is the observation that there are other elements that support a long setup:
1. The price may be down in the short term, the long term trend of the share remains bullish as the price is still above the 200-day average. A long setup therefore means that we will act in the direction of the long-term trend.
2. The Bullish Harami patterns are at the level of the important 200SMA that serves as support.
These are two additional elements that support the pattern. I repeat, it's important to remember that just the specific candlestick pattern alone is never sufficient to base a trade decision on.
The ChartMill Team