Bullish Harami

 


Shape:

The bullish harami is a two-candle reversal pattern that typically forms during a downtrend.
It consists of a large bearish candle followed by a smaller bullish candle that is completely contained within the body of the previous bearish candle.
This pattern indicates a potential pause in selling pressure and a shift towards bullish sentiment. 

Success Rate:
Historically, the bullish harami has a moderate success rate (55–65%), but its reliability increases when it forms at key support levels or is confirmed with higher volume.
It is stronger when combined with other bullish signals (e.g., RSI oversold, bullish divergence).

Buy:
Enter a buy position when the price closes above the high of the smaller bullish candle, confirming the pattern.
Ideally, the confirmation should occur with increased volume.

Take Profit (TP):

  • Conservative: Previous resistance or swing high.

  • Aggressive: Project the height of the first bearish candle upward from the confirmation point to estimate the target.
    Example: If the first bearish candle’s body is Tk.8 and the confirmation breakout happens at Tk.60, then the target would be Tk.68.

Stop Loss (SL):
Place the stop loss slightly below the low of the second (bullish) candle.
This helps protect against false signals in case the downtrend resumes.

Sell:
Consider selling if the price falls below the low of the second bullish candle, invalidating the pattern.
Also consider selling once the price reaches your profit target or shows reversal signals.

Profit Trailing:
Use a trailing stop to secure profits as the price rises.
Adjust the stop loss level upwards in line with higher lows or use moving averages (e.g., 20 EMA) as dynamic support.

Lot Size:
Determine the lot size according to your account balance and risk tolerance.
Ensure that the potential loss (difference between entry price and stop loss) does not exceed 1–2% of your capital.

Risk-to-Reward Ratio:
Aim for at least a 1:2 risk-to-reward ratio, ensuring that potential profit outweighs potential loss.

Leverage:
Use leverage conservatively. While it amplifies profits, it can also magnify losses if the harami fails.
Only use leverage when your setup has strong confluence with other technical signals.

Other Conditions:

  • Works best after a prolonged downtrend or near strong support levels.

  • Stronger when confirmed by bullish volume, oversold RSI, or divergence in oscillators.

  • More reliable on higher timeframes (daily/weekly) compared to intraday.

Caution:

  • False patterns are common if traded in sideways markets.

  • A bullish harami alone is not very strong; it should always be confirmed with other indicators.

  • Avoid trading this pattern during major news events, as volatility can invalidate it quickly.

Pros and Cons of the Bullish Harami

Pros:

  • Early Reversal Signal: Helps identify potential trend reversals near the bottom of a downtrend.

  • Clear Structure: Easy to spot and understand, even for beginner traders.

  • Defined Entry/Exit Points: Entry above the second candle’s high and stop loss below its low provide a straightforward trading plan.

  • Volume Confirmation: When accompanied by strong volume, the pattern becomes significantly more reliable.

Cons:

  • Moderate Reliability: Alone, the pattern is weaker than other reversal signals (e.g., bullish engulfing).

  • Confirmation Needed: Without confirmation, it can easily fail and continue the downtrend.

  • Market Dependency: Less reliable in volatile or ranging markets.

  • Short-Term Nature: Often signals a short-term reversal rather than a long-term trend change.

Trading Psychology of Bullish Harami

Formation:

  • Downtrend Pressure: The first large bearish candle reflects strong selling momentum and market pessimism.

  • Indecision & Pause: The second smaller bullish candle signals reduced selling pressure and the possibility of a reversal.

Market Sentiment:

  • Buyer Optimism: The appearance of a bullish candle inside the prior bearish body suggests that buyers are beginning to test the market.

  • Seller Weakness: Sellers can’t push the price further down, indicating exhaustion and loss of control.

Breakout Psychology:

  • Anticipation: Traders watching the harami pattern anticipate a reversal and plan to enter long trades upon confirmation.

  • Volume Confirmation: A surge in buying volume during breakout reassures traders that the shift in sentiment is genuine.

  • FOMO Effect: Once the price confirms the harami, sidelined traders rush in to buy, adding upward momentum.

Post-Breakout:

  • Validation: A confirmed harami with higher volume strengthens trader confidence and encourages more buying.

  • Profit-Taking: Short-term traders often book profits at nearby resistance, while trend followers hold for longer gains.

  • Trailing Stops: Experienced traders use trailing stops to protect gains while allowing further upside potential.

Failure and Risk Management:

  • False Harami: Sometimes the bullish harami fails, leading to continued downtrend. Traders must use stop losses.

  • Reevaluation: If the pattern fails, traders reassess market conditions and look for stronger signals.

General Tips for Trading Psychology:

  • Patience: Always wait for candle close and breakout confirmation.

  • Discipline: Stick to entry, stop-loss, and TP levels without emotional decision-making.

  • Control Emotions: Avoid rushing in due to hope or fear; let price action guide you.

  • Learning Mindset: Combine harami with other tools (support/resistance, indicators) for stronger confirmation.