Bullish Harami

The bullish harami is a two-bar bullish reversal Japanese candlestick pattern that historically leads to bullish volatility in the stock and crypto markets and bearish volatility in forex.

It’s one of the worst-performing candlestick patterns in technical analysis when traditionally traded.

But what if I told you that you could turn this dud into a profitable pattern by listening to the data?

Would you be interested?

If so, keep reading to learn how to trade bullish harami candlestick patterns in a profitable, data-backed way.

What Is a Bullish Harami Candlestick Pattern?

Bullish Harami Candlestick Pattern Illustration © Analyzing Alpha
Bullish Harami Candlestick Pattern Illustration

The bullish harami is a two-bar pattern that supposedly alerts traders of a bullish move. 

Harami means pregnant in Japanese. The first candlestick is the mother with the child candlestick fitting within the body of the prior. 

And while this candlestick is supposed to be bullish, the bullish harami typically represents incoming volatility.

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

How to Identify the Bullish Harami Candlestick Pattern

Bullish Harami Candlestick Pattern on the Netflix (NFLX) December 6th, 2021 daily chart.
Bullish Harami Candlestick Pattern on the Netflix (NFLX) December 6th, 2021 daily chart.

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

  • The first candle must have a long bearish real body.
  • The second candle is engulfed by the first.
  • The bullish harami must occur in a downtrend.

Engulfing means that one candle’s open and close fit within the real body of the engulfing candle. In bullish harami patterns, the first candle engulfs the second.

We see the bullish harami on Netflix’s (NFLX) December 6th, 2021, daily chart.  

Prices are below the 50-day simple moving average, giving us a downtrend. The first bar is a relatively long bearish candlestick. The second bar is bullish and wholly 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 the best bullish harami trading strategies.

How to Trade the Bullish Harami Candlestick Pattern

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

But before we learn the optimal setups, let’s know how most traders unprofitably trade this pattern.

Bullish Harami Bearish Reversal Trade Setup

Bullish Harami Bullish Reversal Trade Setup on the Microsoft (MSFT) October 29th, 2020 daily chart.
Bullish Harami Bullish Reversal Trade Setup on the Microsoft (MSFT) October 29th, 2020 daily chart.

We once again see the bullish harami on our candlestick charts.

The price is below the 50-day simple moving average. We then see a large bearish candle followed by a small-bodied candlestick.

With the pattern identified, traditional traders enter long on a break of the high of the second candle and place a stop loss below the low of the first bearish candle.

In the above Microsoft chart, the trade made money, but these unsophisticated traders are going against what history tells us.

Let’s use history as our guide and learn how to trade these two candlesticks profitably.

Bullish Harami Bullish Mean Reversion Trade Setup

Bullish Harami Bullish Mean Reversion Trade Setup on the Tesla (TSLA) October 29th, 2020 daily chart.
Bullish Harami Bullish Mean Reversion Trade Setup on the Tesla (TSLA) October 29th, 2020 daily chart.

Let’s identify the bullish harami one more time.

The stock price is downtrending as it’s below the 50-day moving average. We see a long bearish candle followed by a bullish candle engulfed by the previous.

With the pattern set, savvy stock traders wait for the price to cross below the pattern’s low 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 daily Tesla (TSLA) October 29th, 2020, chart.

The low of the bullish harami pattern occurs on the first day at $135.33. The day after the pattern price movies well below $135.33 but never moves back above it. This happens the next day, triggering an entry near the highs. Price does move back lower but never hits the stop loss. The day after, prices start to race upward towards the moving average, turning a profit for this stock tracer – nicely done.

And while volatility works for these patterns, it’s best to go bearish in the forex and crypto markets.

Bullish Harami Bearish Mean Reversion Trade Setup

Bullish Harami Bearish Mean Reversion Trade Setup on the Bitcoin (BTCUSD) September 11th, 2019 daily chart.
Bullish Harami Bearish Mean Reversion Trade Setup on the Bitcoin (BTCUSD) September 11th, 2019 daily chart.

The bearish mean reversion trading setup is the mirror opposite of its bullish brethren.

Once the pattern is identified, traders will wait for a break of the pattern’s high and then enter short when the price falls below that high, setting a stop loss of one ATR.

Using the Bitcoin example above, the high of the pattern is set on the first day at $10,389.26. The price moves above the pattern the day after formation but does not trigger an entry. The next day, the price falls below the pattern’s high, causing a short entry and leading to another profitable bearish mean reversion trade.

Speaking of profits, what does our backtest tell us about these bullish harami trading strategies?

Does the Bullish Harami Pattern Work? (Backtest Results)

I backtested the bullish harami candlestick pattern on the daily timeframe in the crypto, forex, and stock markets using the following rules:

  • 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 bullish harami. It’s essential to understand the differences between these similar patterns when using candlestick pattern technical analysis.

Bearish Harami vs. Bullish Harami

Bearish Harami Candlestick Pattern Illustration © Analyzing Alpha
Bearish Harami Candlestick Pattern Illustration

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

Both are supposed to be reversal patterns, but history tells us volatility is more likely than a trend reversal.

Bullish Harami Cross vs. Bullish Harami

Bullish Harami Cross Candlestick Pattern Illustration © Analyzing Alpha
Bullish Harami Cross Candlestick Pattern Illustration

The only difference between a bullish harami cross and a bullish harami is that the second candle of the harami cross is an engulfed doji candle. In contrast, the bullish harami only requires that the second candle is engulfed by the previous – it doesn’t require it to be a doji.

Bullish Engulfing  vs. Bullish Harami

Bullish Engulfing Candlestick Pattern Illustration © Analyzing Alpha
Bullish Engulfing Candlestick Pattern Illustration

The bullish engulfing candlestick pattern and bullish harami patterns are almost identical but with their candles flipped. The only difference is that the second candle engulfs the first in the bullish engulfing, whereas the first candle engulfs the second in the case of the bullish harami.

The Bottom Line

The bullish harami frequently occurs in all markets. The data shows us that the patterns likely mean volatility is incoming and that traders should go against the grain and listen to the data instead of trading like everyone else.

I’ve ranked and reviewed every candlestick pattern, including the best double candlestick patterns.

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