Bearish Harami Explained & Backtested (2024)

The bearish harami is a two-bar bearish reversal Japanese candlestick pattern that suggests volatility is near according to an extensive backtest.

If you practice traditional candlestick technical analysis, there’s a good chance you’re losing money with this three-bar pattern.

But what if I told you that you could turn this loser into a winner by listening to history?

Would you be interested?

If so, keep going to learn how to trade bearish harami candlestick patterns in a profitable, data-driven way.

What Is a Bearish Harami Candlestick Pattern?

The bearish harami is a two-bar candlestick pattern.

Harami means “pregnant” in Japanese. The harami pattern has a large first mother candle that completely engulfs the second baby candle.

But before we dive into the past performance of this bearish harami pattern, let’s learn how to identify it on our candlestick charts.

How to Identify the Bearish Harami Candlestick Pattern

The following are the requirements for a valid bearish harami pattern:

• The first candle must have a long bullish real body.
• The second candle is engulfed by the first.
• The pattern must occur in an uptrend.

Engulfing means that one candle’s open and close fit within the real body of the engulfing candle. In bearish harami patterns, the second candlestick is engulfed by the first candlestick.

We saw the bearish harami on the daily chart for Apple (AAPL) on December 28th, 2021.  

Prices are above the 50-day simple moving average, constituting an uptrend. The first bar is a relatively long bullish marubozu candlestick. The second bar is entirely engulfed by the first bar, fulfilling all the pattern requirements.

Now that we know how to identify this supposed bearish reversal pattern let’s learn how to trade this harami pattern profitably.

How to Trade the Bearish Harami Candlestick Pattern

The bearish harami is traded optimally using a bullish mean reversion strategy in the crypto and stock markets and a bearish mean reversion trading strategy in the forex markets.

But before we learn the best setups, let’s know how most traders lose money trading this pattern.

Bearish Harami Bearish Reversal Trade Setup

We once again see the bearish harami chart pattern on our candlestick charts.

The price is above the 50-day simple moving average, which we consider a bull market or uptrend. We then see a large bullish candle followed by a doji engulfed by the body of the first.

With the pattern identified, traditional traders enter short on a break of the low of the second candle and place a stop loss above the high of the first bullish candle.

In the above Alphabet example, the trade was profitable, but these uneducated traders are likely to lose money more often than not.

Let’s learn how to trade these two candlesticks profitably.

Bearish Harami Bullish Mean Reversion Trade Setup

Practicing identifying the bearish harami one more time, we see it occur on the Nvidia (NVDA) August 16th, 2021, daily chart. 

The stock price is in an uptrend even though it’s close to the 50-day simple moving average. We see a long bullish marubozu followed by a bearish candle whose real body is engulfed by the first.

With the pattern set, savvy data-driven traders wait for the price to cross down below the low of the pattern and enter long when prices come back up through that low with a stop loss of one ATR.

Let’s make this unambiguous using the above Nvidia example.

The low of the bearish harami pattern occurs on the second day at $194.53. The next day, the price drops below the pattern’s low. Now the mean reversion trader needs to wait for the price to move back up past the low of $194.53 to enter long. This occurs on the same day, and traders would enter at $194.53 and profit nicely.

Bearish Harami Bearish Mean Reversion Trade Setup

The bearish mean reversion setup works like the bullish mean reversion setup except in reverse. 

We’ll skip identifying the bearish harami as we’ve placed it multiple times. Forex traders want to go opposite to crypto and stock traders.

Once the pattern is identified, traders will wait for a break of the high of the pattern and then enter short when the price retraces through that high.

We’ll use the Canadian dollar chart above to make this clear. The high of the pattern is set on the first day at $0.8016. The price moved above and below the pattern high on April 21st, 2021, triggering an entry with a data-driven trader taking profit within one or two bars.

These Canadian traders are on the right side of history. What does history tell us about the profits for the best bearish harami trading strategies?

Does the Bearish Harami Pattern Work? (Backtest Results)

Using the following rules, I backtested the bearish harami candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

• A close above the 50-day SMA constitutes an uptrend.
• I tested risk-reward ranges from 1 to 5. 
• The optimal risk-reward ratio is selected using profit per bar.
• Entry and exits are discussed in the how-to trade section above.
• Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Many candlestick patterns are similar to the bearish harami. It’s essential to understand the differences between these lookalike patterns when using candlestick pattern technical analysis.

Bullish Harami vs. Bearish Harami Candlestick Patterns

The bullish harami candlestick pattern is the mirror opposite of its bearish sibling. The bullish harami pattern occurs in a downtrend, with its first candle being a large bearish red candle followed by a smaller engulfed candle. 

Both are supposed to be a reversal pattern, but we know that history tells us volatility is more likely than a trend reversal.

Bearish Harami Cross vs. Bearish Harami Candlestick Patterns

The bearish harami cross candlestick pattern has only one difference compared to the bearish harami: the second candle of the harami cross must be a fully engulfed doji candle. In contrast, the bearish harami only requires that the second candle is engulfed by the first – it doesn’t need to be a doji.

Bearish Engulfing  vs. Bearish Harami Candlestick Patterns

The bearish engulfing candlestick pattern and bearish harami patterns are almost identical. The only difference is that the second candle engulfs the first in the bearish engulfing, whereas the first candle engulfs the second in the case of the bearish harami.

The Bottom Line

The bearish harami frequently occurs in all markets, and most traders lose money trading it. The good news is that by putting data on your side, you understand that this pattern means we’ll have a period of volatility followed by a likely trend resumption.

Interested in a data-driven approach? I backtested every candlestick pattern to learn how to trade candlestick patterns.