Bullish Harami Cross Explained & Backtested (2024)

The bullish harami cross is a two-bar bearish-reversal Japanese candlestick pattern that suggests near-term volatility followed by an extended move, according to the backtest data.

It loses money in every market tested when traded according to standard technical charting rules.

But before you use your samurai sword to sever this technical analysis pattern from existence, what if you could turn this into a big winner using history as your guide?

Would that get you interested?

If so, keep reading to learn how to trade bullish harami cross candlestick patterns in a powerfully profitable way.

What Is a Bullish Harami Cross Candlestick Pattern?

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

The bullish harami cross is a two-bar pattern that is supposed to alert traders of an incoming bullish reversal.

Harami is derived from the Japanese word “pregnant”, where the first candle is the mother candle and the second child candle is within the body of the first – otherwise known as engulfed.

But before diving into the backtest of this bullish harami cross pattern, let’s learn how to identify it on our candlestick charts.

How to Identify the Bullish Harami Cross Candlestick Pattern

Bullish Harami Cross Candlestick Pattern on the Alphabet (GOOG) October 25th, 2021 daily chart.
Bullish Harami Cross Candlestick Pattern on the Alphabet (GOOG) October 25th, 2021 daily chart.

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

  • The first candle must have a long bearish real body.
  • The second candle is a doji engulfed by the first.
  • The bullish harami cross 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 cross patterns, the first candlestick engulfs the second doji.

We saw the bullish harami cross on the Alphabet (GOOG) daily chart on October 25th, 2021.

The price is below the 50-day moving average, which we’re using as a proxy for a short-term bear market. The first bar is a relatively long bearish red candlestick. The second bar is a doji engulfed by the previous bar, fulfilling the pattern requirements.

With an understanding of how to identify this bullish reversal pattern, let’s learn how to trade it optimally.

How to Trade the Bullish Harami Cross Pattern

The bullish harami cross is best traded using a bullish mean reversion setup in the crypto and stock markets and a bearish mean reversion trading setup in the forex markets – precisely the same as the bullish harami. 

But before we get into the best trade strategies, let’s understand how most professional traders lose money on this pattern.

Bullish Harami Cross Bullish Reversal Trade Setup

Bullish Harami Cross Bullish Reversal Trade Setup on the Nvidia (NVDA) January 19th, 2021 daily chart.
Bullish Harami Cross Bullish Reversal Trade Setup on the Nvidia (NVDA) January 19th, 2021 daily chart.

With the price below the 50-day SMA and a sizeable red closing marubozu candle followed by a doji engulfed in the previous, the pattern is set.

Traditional traders enter short on a break of the high of the second doji candle and place a stop loss below the low of the first large candlestick.

This trade produced profits in the above Nvidia example, but it’s not the optimal setup according to history.

Bullish Harami Cross Bullish Mean Reversion Trade Setup

Bullish Harami Cross Bullish Mean Reversion Trade Setup on the Tesla (TSLA) February 22nd, 2019 daily chart.
Bullish Harami Cross Bullish Mean Reversion Trade Setup on the Tesla (TSLA) February 22nd, 2019 daily chart.

Practice makes perfect so let’s identify the bullish harami cross once again.

The stock price is below the 50-day moving average, giving us the requisite downtrend. We see a long bearish candle followed by a doij engulfed by the previous candle.

With the pattern identified, innovative crypto and stock traders wait for the price to cross below the pattern’s low and enter long when prices rise above the same low, using a stop loss of one ATR.

Let’s make this crystal clear using the above Tesla example.

The low of the bullish harami cross pattern occurs on the first candle at $19.37. The day after pattern identification, the price does not fall below 19.37, so no action is taken. The price drops below and rises above the low on the second day, triggering a long entry at $19.37.

Now that we know the best bullish harami stock and crypto trading strategy, what about forex?

Bullish Harami Cross Bearish Mean Reversion Trade Setup

Bullish Harami Bearish Mean Reversion Trade Setup on the British Pound (GBPUSD) June 12th, 2018 daily chart.
Bullish Harami Bearish Mean Reversion Trade Setup on the British Pound (GBPUSD) June 12th, 2018 daily chart.

The bearish mean reversion setup is identical to the bullish, just in the opposite direction with a shorter bounce.

Once the pattern is identified, data-driven forex traders will wait for a break of the pattern’s high and then enter short when the price falls through that same high.

Using the GBPUSD chart above, the pattern high is set on the first day at 1.34414. The price moves above the pattern high on the second day after pattern identification. It quickly falls, triggering an entry at the same price and leading to a profitable mean reversion trade.

Speaking of profits, what can history tell us about the best bullish harami cross trading strategies?

Does the Bullish Harami Cross Pattern Work? (Backtest Results)

Using the following rules, I backtested the bullish harami cross 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 have similar candlesticks to the bullish harami cross. It’s essential to understand the differences between these related patterns when using candlestick pattern technical analysis.

Bearish Harami Cross vs. Bullish Harami Cross

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

The bearish harami cross candlestick pattern is the opposite of its bullish sibling. The bearish harami pattern occurs in an uptrend, with the first candle being a bullish green candle followed by an engulfed doji.

Both are supposed to reverse the existing trend, but history tells us we should anticipate volatility instead.

Bullish Harami vs. Bullish Harami Cross

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

The only difference between a bullish harami candlestick pattern and a bullish harami cross is that the second candle of the bullish harami doesn’t need to be a doji. In contrast, it’s required for the harami cross.

The Bottom Line

The bullish harami cross occurs relatively frequently in all markets, and most traders play it wrong. By letting data drive your trading strategies, you can understand that the pattern most likely means volatility is incoming and profit from that knowledge.

When you take a data-first approach, it makes it much easier to learn how to read candlestick patterns.

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