In the ever-changing realm of trading, it is essential to master effective strategies to achieve success. The Bullish Harami is a strategy that has become popular due to its simplicity and the potential for profitability.
In this discussion, we’ll explore a significant type of multi-candlestick pattern known as the Bullish Harami Candlestick pattern, which traders employ to develop reversal strategies in the market.
Bullish Harami Candlestick Pattern – Definition
Harami is a Japanese word which means the pregnant woman. A simple understanding of this candlestick pattern will add meaning to why it is referred to as harami.
The Harami candlestick pattern is a multiple candlestick pattern that involves two candles. A large candle precedes a small candle, and usually, the second candle’s colour is opposite to the first candle’s colour.
It helps traders to identify potential trend reversals in a security, it can be either a bullish reversal or a bearish reversal. The pattern formation looks similar to a lady carrying a baby in her womb, the first candle refers to the mother and the second candle is the baby in the womb, so the Japanese name Harami arrived.
Bullish Harami Candlestick Pattern – Meaning
A bullish harami pattern is a signal for a bullish reversal that occurs at the end of a prolonged downtrend. The initial candle in the pattern, after the preceding downtrend, is a large red candle indicating that the bears are dominating and driving the prices lower. The second candle in the pattern will be a small green candle starting with an opening price above the previous candle’s closing price.
As the market strengthens, the second candle closes in green. Its closing price is below the opening of the preceding red candle. With bulls taking charge, the trend shifts from a downtrend to an uptrend. Prices begin to reach new highs, prompting traders to consider entering a long position in the security.
Also read…
Trading setup with Bullish Harami Candlestick Pattern
Here, we shall see how to spot entry, stop loss and target levels for a long position signalled by a bullish harami pattern.
Entry:- When a valid bullish harami pattern is formed, one can enter a long position. As entry is preferred after the confirmation, place an order at the close of the next green candle.
Stop loss:- The stop loss for a long position in security is placed at the lowest low of the pattern formed.
Profit Target:- Targets are preferred based on traders’ risk-reward ratios, a 1:2 risk-reward ratio is preferred here as a safe target.
Bullish Harami Candlestick Pattern – Example
Above is the chart of Axis Bank showing the formation of a bullish harami candlestick pattern after a strong downtrend. Traders can enter a long position here with predefined entry and stop-loss levels as shown in the chart.
Limitations of Bullish Harami Candlestick Pattern
- It is not always reliable, as the pattern can produce false signals based on market conditions.
- Completely can’t rely on the pattern itself. So, use of other technical tools in conjunction is preferred.
- The frequent pattern formation can lead to overtrading without proper analysis.
- Without a valid pattern formation and confirmation false identification of a pattern leads to false trade.
Conclusion
The bullish harami candlestick pattern is used by traders to identify potential trend reversals, whether bullish or bearish. To ensure reliable trade setups, it is recommended that traders combine harami patterns with other technical analysis tools. These may include indicators and chart patterns to confirm valid trades.
Written by Deepak
By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.
Start Your Stock Market Journey Today!
Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!
