Bullish Harami Candlestick Pattern: Meaning, Trading Formula and Target 2025

In this candlestick series, we are now focusing on the Bullish Harami Candlestick. As the name suggests, this is a bullish candlestick pattern. It originates from Japanese candlestick terminology, where “Harami” means a pregnant lady.

It’s a bit unusual, but that’s how the Japanese are! However, here we will focus on learning candlesticks thoroughly, so make sure to read the entire article.

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What does Bullish Harami Candlestick Mean?

The Bullish Harami candlestick is a two-candlestick pattern that signals a potential reversal from a downtrend to an uptrend. The term “Harami” comes from the Japanese word for “pregnant,” symbolizing the way the pattern looks. The first candlestick in this formation is a large bearish candle that represents strong selling pressure. The second candlestick, which follows it, is a smaller bullish candle that is entirely within the body of the previous candle. This indicates a pause or weakening of the bearish momentum, suggesting that buyers are beginning to enter the market.

This pattern is significant because it highlights a shift in sentiment, from bears dominating the market to bulls potentially taking control. While the Bullish Harami doesn’t guarantee a reversal, it is often considered a sign of indecision among traders, with a growing possibility of price moving upward. To confirm the reversal, traders often look for additional bullish signals or follow-up candles in the subsequent sessions. When used with other technical indicators and analysis, the Bullish Harami can be a valuable tool for identifying potential buy opportunities.

How to Identify a Bullish Harami Candlestick?

The easiest way to identify a Bullish Harami candlestick pattern is to understand that it consists of two candlesticks, just like its name has two words. The first candlestick will be red (bearish), and after it closes, a green candlestick (bullish) will form with a slight gap up opening. The green candlestick won’t have much movement and will remain entirely within the body of the first red candlestick, closing inside it. The second candlestick will also be relatively small.

Try to look for this pattern near a support level, as the chances of finding it there are higher.

What is the Opposite of Bullish Harami?

The opposite of a Bullish Harami candlestick pattern is simply the Bearish Harami candlestick pattern.

How to Trade the Bullish Harami Candlestick?

The Bullish Harami candlestick pattern is a two-candle reversal pattern that often indicates a potential shift from a downtrend to an uptrend. Here’s a detailed explanation and a high-probability trading strategy to trade this pattern effectively:

Understanding the Bullish Harami Pattern

1. Structure:
   • The first candle is a large bearish candle (red) that aligns with the ongoing downtrend.
   • The second candle is a smaller bullish candle (green) that opens and closes within the body of the first candle.

   This structure suggests a loss of bearish momentum and potential reversal.

2. Psychology Behind It:
   • The large bearish candle shows strong selling pressure.
   • The smaller bullish candle reflects hesitation or buying interest, signaling that the bears are losing control.

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Step-by-Step Trading Strategy

1. Identify the Pattern

• Look for the Bullish Harami at the end of a downtrend or near a support level (trendlines, Fibonacci retracement levels, or historical price levels).

2. Confirm with Indicators

• RSI (Relative Strength Index): Check for oversold levels (below 30) to confirm a potential reversal.
• Volume: Higher volume on the bullish candle adds credibility to the pattern.
• Moving Averages: The price near a significant moving average (e.g., 50 or 200 EMA) may act as support.

3. Enter the Trade

• Entry Point: Enter long (buy) when the price breaks above the high of the bullish candle in the pattern. This confirms that buyers are in control.

4. Set a Stop-Loss

• Place the stop-loss below the low of the Bullish Harami pattern. This limits your risk if the pattern fails.

5. Set a Target

• Use the nearest resistance level, Fibonacci extension levels, or a risk-to-reward ratio of at least 1:2 for setting your target.

High-Probability Enhancements

1. Multiple Timeframe Analysis:
   • Confirm the Bullish Harami on a higher timeframe (e.g., daily chart) for stronger signals.
2. Combine with Support Zones:
   • The pattern at key support levels (e.g., previous swing lows) increases the probability of success.
3. Avoid Choppy Markets:
   • Ensure the market has a clear trend or momentum before the pattern forms. Choppy or sideways markets reduce reliability.

Example

• Scenario: Stock ABC is in a downtrend, and at a key support level, a Bullish Harami forms.
• Indicators: RSI is at 25 (oversold), and volume on the second candle is higher.
• Action:
  • Buy above the high of the bullish candle (e.g., 100).
  • Place stop-loss below the pattern low (e.g., 95).
  • Target the next resistance level (e.g., 110).

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Tips for Success

• Backtest the strategy to gain confidence.
• Use proper position sizing to manage risk effectively.
• Always trade with a predefined plan and stick to your rules.

What is the Psychology Behind the Bullish Harami?

The psychology of candlesticks is very important, which is why understanding it is crucial. The psychology behind the Bullish Harami candlestick pattern revolves around a shift in market sentiment and the balance of power between buyers and sellers. Here’s a detailed breakdown:

1. Downtrend and Dominant Bearish Sentiment

• Before the Bullish Harami forms, the market is in a downtrend, characterized by lower highs and lower lows.
• Sellers (bears) are in control, and there is strong selling pressure.
• Traders expect the price to continue falling, creating a bearish outlook.

2. Formation of the First Candle (Large Bearish Candle)

• The large bearish candle aligns with the prevailing downtrend and reinforces the bearish sentiment.
• This candle shows that sellers are confident and dominant, pushing prices lower with strong momentum.

Psychology:

• Market participants believe the trend will continue, and fear of further losses leads to more selling.
• Weak buyers exit their positions, further intensifying the downward move.

3. Formation of the Second Candle (Smaller Bullish Candle)

• The second candle opens within the body of the first candle, signaling reduced selling pressure.
• Unlike the first candle, the second candle closes higher than it opens, creating a bullish body.

Psychology:

• Sellers are losing momentum, possibly due to reaching a support level or oversold conditions.
• Buyers begin to step in, sensing an opportunity to buy at a lower price.
• The smaller size of the second candle reflects market indecision or hesitation, marking a potential shift in sentiment.

4. Shift in Market Sentiment

• The key psychological shift happens when the smaller bullish candle forms entirely within the larger bearish candle.
• This pattern signals that the bears are losing control, and buyers are gaining confidence.

Psychology:

• Buyers interpret this as a potential reversal, especially if it occurs at a support zone or after a prolonged downtrend.
• Sellers who were expecting further price drops may hesitate or start covering their positions.
• The overall market begins to anticipate a change in trend.

5. Confirmation and Follow-Through

• Confirmation occurs when the price breaks above the high of the bullish candle, indicating that buyers are taking control.
• The follow-through buying pressure reinforces the idea of a trend reversal.

Psychology:

• Traders waiting for confirmation see the breakout as a signal to enter long positions.
• The increased buying activity pushes prices higher, leading to a self-fulfilling reversal.

Why the Bullish Harami Works

• It reflects a clear transition from bearish dominance to buyer interest.
• It often occurs in oversold conditions, where selling pressure is exhausted, and buyers see value.
• The indecision shown by the smaller candle highlights a potential reversal point.

Summary of Psychology

The Bullish Harami represents a “pause” in bearish momentum and a subtle but significant shift in sentiment. It tells a story of waning selling pressure, growing buyer confidence, and the possibility of a reversal. Traders who understand this psychology can use the pattern to identify high-probability entry points in the market.

Conclusion on Bullish Harami Candlestick

This was about the Bullish Harami candlestick, where we explored its definition, understood why it is named as such, learned how to take trades with the highest probability of hitting the target, and delved into its psychology as well.

So, if anyone wants to make any improvements to this article, please contact Street Investment, and happy trading to all traders!