Bullish harami is a reversal pattern that will appear at the bottom of a downtrend. Bullish harami has the opposite, namely bearish harami. To find out more, you can read the following article. In addition, be sure to read another article, namely Learning Bullish Pin Bars Along with Their Characteristics and Examples.

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What is Bullish Harami

Harami means pregnant in Japanese and the Harami Pattern looks like a pregnant woman, with the first candle being a large long, bearish or bullish candle. The second candle, on the other hand, is like a small pot belly next to the first candle. This pattern resembles a pregnant woman. The Bullish Harami pattern occurs after a downtrend, long-term trend, or technical rally. The opposite of the Bullish Harami is the Bearish Harami and is found at the top of an uptrend. The Harami candle has an inside bar with a small range.

When an investor sees a harami candle usually indicates an expansion of volatility in the direction of the trend. Bullish Harami is a two-line pattern where the black candle body of the first line engulfs the white candle body of the second line. The first line can be any basic candle with a black body, which appears as a long line, namely: Black Candle, Long Black Candle, Black Marubozu, Opening Black Marubozu, Closing Black Marubozu, Spinning Candle, even with a black body, cannot appear on the first line.

The second line can be any white base candle, appearing either as a long or short line. It can even be a doji candle, except for the Four Price Doji. The pattern appears in a downtrend and predicts its reversal. The Bullish Harami pattern requires confirmation on the next candle. Morris created the Three Inside Up pattern as a confirmation of the Bullish Harami. The pattern can be confirmed by breaking through the nearest resistance zone or trendline.

If the following pattern appears, the candle closes below the opening price of the second line (i.e. a white candle), the downtrend is likely to continue. Conversely, when the candle following the pattern closes above the second line, the downtrend is likely to stop.

What to be careful of when the first line of the Bullish Harami has a long black body because it can form a strong resistance zone. The market context in which the Bullish Harami is developing is more important than the length of the body or the shadows of the candle.




The Bullish Harami pattern is confirmed by a White Candle located above the trendline. The White Candle is part of the bullish Turn Up pattern.



The chart shows that the biggest "problem" of the harami pattern is its first candle. On the chart, we can see that the market could not win with the black candle being the first line of the Bullish Harami pattern.

How to Read Bullish Harami

The entry of a bullish Harami trade looks the opposite. In this case, we have a longer bearish candle during a bearish trend and a second bullish candle that is smaller and completely engulfed by the previous candle. Confirmation will come if we get a third bullish candle that closes above the close of the previous bullish candle.


 
Here are some common considerations and scenarios for trading bullish harami candlesticks. Trade Entry: The formation of a bullish harami during a downtrend is considered a reversal sign, i.e. - the market price is expected to go down in the near future. So traders try to go long at or around the low of the bullish harami candle (the baby candle).

However, since many traders like to wait for the confirmation candle to form, the buy price may be higher since the trend has pushed the price up. That is the tradeoff that must be prepared. Stop-loss Limit: Stop-loss varies from trader to trader based on their trading preferences, but usually when going long, they set the stop-loss at 2-3 units below the low of the bullish baby harami candle.

Others who enter at a higher price should adjust their stop-loss proportionally. Profit level: When actively trading on short intervals, traders should follow the risk-reward ratio to determine the possible profit level of their bullish harami pattern trade. For example, if the stop-loss limit is set at $1 (the maximum loss one is willing to take on the trade) and the risk-reward ratio followed is 1/2, then one should take profit when it reaches $2.

If the risk-reward ratio followed is 1/3, then one should aim for profit when the price reaches a level that yields $3 for every $1 stop-loss set. Market Conditions: More volatile stocks with high beta values ​​often tend to have high bullish harami formations. Therefore, selecting the right stock/ETF/index is important when trading based on bullish harami.
Along with the requirements of the bullish harami formation mentioned above, traders should ensure that their chosen price range, band, or trendline boundary is broken with a major move of the second (and subsequent) bearish candle. This ensures a higher success rate of profitability.
 
Although we should note that trading on technical analysis such as candlestick patterns has a limited success rate, so it is advisable to follow strict stop-losses, disciplined trading, and efficient money management.

Characteristics of the Bullish Harami Pattern

The following are the characteristics of the emergence of a bullish harami pattern. These characteristics are:
  • Look for an existing downtrend.
  • You may get a signal about a slowing or reversing trend, just wait for it - it will be candles moving in a crossover, or a constant bullish pattern formation, or a downtrend.
  • Now, make sure the body of the small green candle is not more than 25% of the previous candle on the chart. If the stock is gaping or high, then the green candle will rise halfway from the previous candle or bar.
  • Keep in mind, when it comes to forex charts, the candles will appear side by side, not too high or low.
  • A true bullish candle will be seen closed within the length of the previous candle on the chart.
  • You can also take help and support from indicators and levels.

Bullish Harami Example

So, here are some general considerations regarding forex trading with the Bullish Harami pattern. Let's look at them one by one.

Market Conditions

Volatile stocks that have high beta values ​​form a bullish pattern in general. You as an investor should choose the most suitable stock or index. The selected price margin should be high and should break through the second bearish candle. Only such a move will result in profit. However, there are limitations with such a trading method; therefore, you can choose the stop-loss method.

Batas Stop-Loss

Now the method differs from trader to trader which also depends on their trading preferences. However, if you are going to buy, you can set the stop-loss proportion at 3 units below the lowest price of the candle. If you enter at a high price, then you should also be ready for the risk. For beginners, it is advisable to keep it low.

Trade Entry

Now, you know that downtrends usually take a reversal, and the price will fall in the future. Therefore, you can take a low price for a long position, as usual. Otherwise, you can also wait a little longer and then take a high price, because the profit will appear soon.
 
You have to plan strategically and with a lot of patience! During the first part of 2021, Bitcoin went down. There were short periods of decline, which only provided consolidation zones to launch the next rally. One consolidation zone ended with a bullish Harami pattern. Let's examine this setup more closely.


In January 2021, Bitcoin began consolidating its recent gains and trended lower in a correction. The downtrend was the first step in creating an environment ripe for a bullish Harami (1).
 
January 21, the biggest day of decline for Bitcoin, showed that traders may have given up and a bottom was imminent. This large red candle was the first of two candles in the Harami pattern (2). Sure enough, the following day saw Bitcoin push lower slightly, but end the day higher. The body of this second candle was engulfed by the body of the first candle (3). This helped set up a bullish trading opportunity.
 
The trade setup is very simple. The long entry will occur just above the high of the second candle. In this case, the long entry will occur near $33,800 (3). The stop loss should be set just below the low of the Harami. In this case, there was a recent swing low just below this same price zone. Therefore, it would be wise to set the stop loss just below all of those lows near $27,480 (4). Then, we calculate the distance between the entry point and the stop loss.
 
In this case, the difference is $6,320. We want to double that distance and it comes to $12,640. Add the new doubled amount to the entry price to calculate the take profit level. $33,800 + $12,640 results in a take profit level of $46,440 (5). This ensures a risk-to-reward ratio of 1:2.



After a few candles, a long trade entry into Bitcoin is triggered. Then, the trader waits for the target or stop loss to be reached. The price approaches but never reaches the stop loss level, and eventually rallies to reach the target.

Advantages of Using Bullish Harami

The advantages of bullish harami are as follows:
  • Easy to recognize by novice traders.
  • The bullish harami shows an attractive entry level when the pattern appears at the start of a potential uptrend.
  • The Bullish Harami can offer a very attractive risk to reward ratio compared to the Bullish Engulfing pattern.
  • An effective chart pattern when used in combination with other technical indicators such as MACD and Fibonacci support and resistance levels.
After learning about bullish harami, then you can identify this bullish harami when it appears on the trading chart. In addition, register yourself by becoming a trader at GIC starting from 150,000 rupiah!