Bearish Harami: Definition and Trading Strategies

You should buy in the bearish market because it has been observed that the stock market has always gone up historically. You also gain the benefit of buying quality stocks at really cheap prices. Strike offers a free trial along with a subscription to help traders and investors make better decisions in the stock market.

Fortunately, the short position proved to be fruitful, yielding almost 10% profit by the end of the month. Both harami patterns begin with a long-ranged candle and end with a small second candle that is contained within the first. Additionally, both harami patterns signal trend reversals, albeit on opposite sides. When used together, the bullish harami and Bollinger Bands signal slowing momentum to the downside and a potential upside reversal.

Spot the harami pattern

Immediately, you can see that we now have a better understanding of the overall price context. The first candle (pregnant candle) is a large candle that continues the current trend, and the trailing candle is a small candle that protrudes like a pregnant woman, as shown in the photographs above. It’s worth noting that the second candle will technically gap inside the first. Gapping on forex/stock/crypto charts, on the other hand, is uncommon due to the 24-hour nature of currency trading. As a result, the theoretically perfect harami candlestick pattern is uncommon in the FX market, as gaps are narrow and the second candle frequently forms a small inside bar of the first.

By augmenting the pattern with additional technical indicators, traders create a more holistic view of the market, enabling more informed and precise trading decisions within algorithmic frameworks. The potency of the pattern is determined by the size of the second candle; the smaller it is, the more likely a reversal will occur. A bullish harami, which is preceded by a downtrend and predicts that prices may reverse to the upside, is the polar opposite of a bearish harami. A bearish hammer candlestick pattern indicates a potential bearish reversal in the market.

Common Bullish Harami Pattern Mistakes to Watch out

Harami patterns provide traders with both market continuations and reversals signals, based on the trend’s strength. Traders are also able to identify entry points across different currency pairs in multiple timeframes with these patterns. Since prices in the forex market can change rapidly, harami patterns can be used to identify quick shifts in market momentum accurately.

This trend is primarily driven by differences in monetary policy approaches. Now that we are short Citigroup, we wait for an opposite signal from the stochastic. 5 periods later, the blue stochastic line hops into the oversold area for a moment. The preceding candle tends to be very large in relation to the other candles around it. Nathalie Okde is an SEO content writer with nearly two years of experience, specializing in educational finance and trading content.

Evaluating the effectiveness of harami patterns

As an example of a live trading scenario, we chose to trade the Dow Jones Industrial Index (INDU). Comparatively, the bullish engulfing pattern is generally considered a stronger bullish reversal pattern since the second bullish candle completely engulfs or covers the first small bearish candle. This integration is crucial as the Bearish Harami, while noteworthy, may yield different success rates depending on market conditions.

A bearish harami is a two-bar Japanese candlestick pattern that indicates a price reversal is imminent. A tall white candle is followed by a little black candle in this arrangement. The second candle’s opening and closing prices must be contained within the first candle’s body. A bullish harami is a candlestick chart pattern that typically signals a potential bullish reversal in the price of an asset.

1. Continuation candlestick patterns are those that represent the continuation of the existing active trend.
2. Although the stochastics are one of the faster oscillators, it might take forever until you match your candle pattern with an overbought/oversold signal.
3. Investors and traders must enter the trade when the confirmation candle is about it close, to ensure good returns.
4. A bullish Harami pattern and a trendline break is a combination that could result in a buy signal.
5. The first candlestick is a long down candle (typically colored black or red) which indicates that the sellers are in control.

Our third strategy focuses on trading with two trend indicators, the Know Sure Thing and Fisher Transform Indicators. The KST generates trading signals when it crosses over the signal line, while the Fisher Transform highlights when prices reach extremes. You should look for overbought or oversold conditions, which may indicate turning points in the asset’s price. Interestingly, the Harami pattern can occur in the form of a Doji instead of the second candlestick. However, the Harami cross does not differ from the traditional Harami pattern.

1. If the pattern is confirmed, you may enter a long position by buying the asset at the current market price.
2. Finally, in this fourth example, we want to illustrate how the bullish harami candlestick pattern can also lead to an indecisive outcome (where it neither lead to a bullish or bearish trend).
3. Remember, the shorter the red candle, the higher the chances of a potential reversal in the market.
4. We can also use the Moving Average Convergence Divergence (MACD) indicator as a confirmation tool when considering a trade based on the bullish harami candlestick pattern.
5. The main disadvantage of the bullish harami candlestick is the need to wait for the trend reversal confirmation.

But most of the people fail while following them because they lack patience. harami candlestick Warren buffet has made money in the bear market also because he followed his plan and remained patient. Warren buffet has always maintained a huge cash reserve for quick opportunities of investment.

When you see a Bullish Harami pattern forming, check the MACD for a bullish crossover (where the MACD line crosses above the signal line). This crossover indicates that bullish momentum is building, which supports the possibility of a trend reversal suggested by the bullish harami. Using indicators like MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index) can help confirm the validity of a bullish harami pattern.

Firstly, a bullish harami candlestick is a bullish trend reversal indicator whereas the shooting star is a bearish trend reversal indicator. Secondly, the bullish harami candlestick pattern is made up of two candlesticks while the shooting star pattern consists of a single candlestick. All the advantages primarily revolve around the ease of spotting and identifying the bullish harami candlestick. Its distinctive shape which resembles a pregnant woman aids in its quick identification.

Backtesting the Harami candlestick and Pivot Points strategy#

However, like all technical analysis patterns, it can’t provide 100% accurate signals, so traders confirm it with technical indicators or other patterns before making a trading decision. The main disadvantage of the bullish harami candlestick is the need to wait for the trend reversal confirmation. The confirmation for the bullish harami pattern appears only in the third or fourth candlestick of the harami pattern, which means investors and traders have to wait for a day or two to get the confirmation. Yes, the bullish harami candlestick pattern is a bullish trend reversal indicator. The bullish harami candlestick signals trend reversals from a bearish trend to a bullish trend.