In this comprehensive blogpost, we we'll explore everything that a trader should know to master this pattern, from understanding its formation to identifying it on charts. We'll dive into how to trade it effectivley, the psychology behind why it works, and the market conditions where the accuracy of this pattern is most reliable, we'll also disscuss scenerios where it may fails to give a strong signals and avoid potential pitfalls. Well comparison between the Bullish Harami and Bullish engulfing candlestick pattern. Ultimately, whether you are a bigginer or seasoned in the market this will definitely help to sharpen the skill of trader and leverage this pattern with confidence. Stay tuned as we break down each aspect of this pattern in detail.
Table of content
What is Bullish Harami candlestick pattern?
A Bullish Harami candlestick pattern is a double candlestick formation that means this pattern constitutes two candle, out of which, first being part of downtrend, it is bearish ( red ) candle and the second indicating the bigining of uptrend, it's a bullish ( green ) candlestick pattern. The term " Harami," derived from japanese, means "pregnant," symboliIng the smaller second candle being 'held' within the body of the first larger candle. In this pattern, the first candle is a long bearish candle, indicating a downtrend while the second candle being part of uptrend or intialising the uptrend being a trend reversal candle it is green in coloure. The key identifying feature of this pattern is presenece of second bullish candle completely within the body of the first bearish candle. As this is a trend reversal candlestick pattern, its ideal position of formation is at the bottom of downtrend.How bullish Harami Candlestick pattern forms?
The Bullish Harami Candlestick Pattern is the outcome of double candle formation i.e the formation of this pattern constitutes two candles. Out of which the first is long bearish candle and the second is bullish candle forms completely within the body of the first bearish candle. The downtrend, previous to the pattern is due to selling pressure and the first candle of this pattern also is a bearish candle, but when the bulls comes in the market they used to make buying position opposing the selling pressure, with the thought the underlying asset is now undervalued and available at a lower cost comparative to it's actual worth. The agressive buying impact the sellers positions and they also starts to square-off their positions and thus green candle form, completing the pattern and thereby intiating the uptrend. This is how Bullish Harami Candlestick Pattern forms.How to Identiify Bullish Harami Candlestick Pattern?
The process of identification of Bullish Harami Candlestick Pattern involves occurance of certain charecteristics of this pattern. For this a trader should look for two distinct candles within a downtrend. Out of this two candle, first being a part of downtrend, it is bearish ( red ) in nature with significant in size and the next to bearish there is a bullish ( green ) candle opens with the significant gap between the closing of previous bearish candle. The key indentificational feature of this pattern is formation of the second bullish candle is completely within the body of the first bearish candle, that means the range of the second candle is entirely within the body's range of the first candle. This pattern is also termed as " Harami " which means " Pregnant " , because the first candle serves as mother for the second bullish candle which considered as a baby candle.
Psychology Behind the Formation of Bullish Harami Candlestick Pattern
The psychology behind the formation of bullish harami candlestick pattern reflects a significant shifts in market sentiments from bearish to bullish, as this pattern is considered to be a bearish trend reversal candlestick pattern. The downtrend previous to this pattern indicates that there are enough sellers in the market to tackle the price. Along with that the first candle of this pattern is a significant bearish candle which reinforce the pessimism and fear of falling the market continuously in downward direction. However the formation of next bullish candle, although it is held entirely within the body of the first bearish candle, creates indescision amongs the market participants around the probable move of the market, but as the very next candle to the second bullish candle of this pattern, is bullish breaking the high of it, appeared, sellers guage the condition that the market is going to move upward and intiates to squre-off their short position, along with that buyers find a good opportunity to enter the market and behalf of this pattern supported by additional confirmation, they intiates long positions in the market. Thus the allied action of both the market participants lead the price to rise and biggining of new uptrend.Appearance of this pattern signifies that at one point of time the underlying asset's price were in control of sellers, formation of this pattern weaken their influence over the price and buyers are gaining control of underlying securities price, and thereby improves the probabilty of reversal. For a trader, the Bullish Harami Candlestick Pattern psychologically represents a transition from fear to cautious optimism, as the market begins to change direction.
How to trade the Bullish Harami Candlestick Pattern Effectively?
To trade the Bullish Harami Candlestick Pattern effectively, there are certain important conditions, for that trader must go for. First identify the appearnce of this pattern after a clear and prolonged downtrend, then additionally confirms that the pattern is with proper charecteristics, such as formation of the second candle entirely within the body of the first candle. Once, the pattern satisfying all the conditions occured then wait for next bullish follow- through candle, if the next candle appeared to be bullish, breaking the high of previous candle, closed above the high of the previous candle, then having a long position right after closing the previous candle would be the wise decision. The stop-loss in this case could be according to the risk appetite of individual. In case of the formation of this pattern at key support level, the stop-loss could be just below the low of support level. Traders can aim the target according to the risk they are willing to bear in the market such as 1:2, for every one dollar they are risking, aiming for two dollars. There is another interesting option available out there to protect the profits against pull-back in the market called " trailing stop-loss. " This can be adjusted as the market moves in the fever of the traders.What are the conditions where the accuracy of Bullish Harami Candlestick pattern is high?
There are certain condition which heavily enfluence the perfomance and accuracy of Bullish Harami Candlestick pattern. Understanding this conditions helps to know when and where the accuracy of this pattern is more reliable that crucial for maximizing its effectiveness. There are some important factors such as market context, support and resistance levels, volume, and the size of candlestick all play a significant role in determining the accuracy of the signal generated through these parameters. Traders who become able to identify this conditions get the Bullish Harami pattern as more reliable and thereby have a grate probability of successful trades.Here are the conditions which improves the perfomance of this pattern,
1. Formation of this pattern after prolonged uptrend
2. Support Level Presence
One of the most important condition where the accuracy of this pattern is considerably improves, known as ' formation of this pattern at key support levels. ' Support levels are the zones or an important levels where the number of buying positions are generally high, that is why traders holding these positions resists the price to move further in downward direction. As Bullish Harami candlestick pattern is a trend reversal pattern used to revers the downtrend into uptrend, formed at support level add one more confirmation to the trend reversal's reliability.
3. Low Volume in the First (Bearish) Candle, Followed by a Higher Volume in the Second (Bullish) Candle
Volume play significant role in determing the strength of any candlestick pattern. For this pattern to be reflect high accuracy, its crucial to have lower trading volume on the first candle of this pattern comaparative to the next candle. Lower trading volume in case of first bearish candle indicates that selling presure is comparatevily lower even if the size of candle is significant and increment in the volume on the next bullish candle, indicates that the new buyers have entered the market and the trend is going to revers.
4. Shorter First Candle and Smaller Second Candle
The relative size of the candle forming this pattern also affects its accuracy. If the size of the first bearish candle is not as much significant so that it could completely engulf or held the next candle within its own range and in case of second candle, if it doesn't formed with smaller size so that it can covered-up by the previous candle, then then accuracy of this pattern is likely going to be impacted, because the reasone behind the size is related to the proper formation of this pattern.
5. Occurrence in Oversold Conditions ( eg. RSI Below 30)
The probability of successful trades can significantly increases when a trader use this pattern in combination of technical indicators such as Relative Strength Index ( RSI ). Ideally, when this indicator moves at or below the level of 30, it suggest that currently the market is in oversold condition and thereby indicates that selling pressure is overextended. That is why bullish harami backed by technical indicators like RSI improve the chances of reversal and thereby signify the probability of success.
What are the conditions where the bullish harami candlestick pattern may fails?
Just like other technical indicators and candlestick pattern, the Bullish Harami candlestick pattern may fails to provide results if certain conditions and requirements doesn't met. The conditions such as weak market trends, lack of confirmation from technical indicators, and external market forces can cause the pattern to fail. Recognizing these conditions can help traders to avoid potential pitfalls and improve their trading decisions.Let's explore the conditions where this pattern may fail to deliver the results,
1. Weak or Absent Downtrend
The Bullish Harami candlestick pattern being a trend reversal candlestick pattern, its succuss rate gets affected by the downtrend preceding to this pattern and if the trend preceding to this pattern is weak or sideways then the signal generated by this pattern are not as much reliable. Appearance of this pattern without sufficient selling momentum in prior trend can lead to caught in false breakouts or small temporary price moves instead of true reversal.
2. Formation in a Strong Resistance Zone
Bullish Harami candlestick pattern is a trend reversal candlestick pattern reversing the downtrend into uptrend. Logically, this pattern should forms at the key support levels to have a reversal in trend, but if this pattern forms at strong resistance zone instead of support levels, it is likely to face rejection out there leading fall the price right after the formation of this pattern even if it is bullish candlestick pattern. Formation of this pattern ar resistance level could be indication of false breakout. In such kins of situations the chances of successful trades are almost negligible.
3. Low Volume on the Bullish Candle
Volume play crucial role in identifying the potential of any candlestick pattern formed in the market. If the second bullish candle contributing the formation of this pattern lack sufficient volume increaments in that session in which it formed, then it shows that buying interest created behalf of this pattern formation doesn't hold as much strength, increasing the chance of failure in market or getting stop-loss in that trades. In such cases the trader should wait for additional confirmation before going to plan any trades behalf of this pattern.
4. Formation in Overbought Condition
When the momentum indicator like RSI indicatating the overbought nature of the market, that means the market is already overextended and in such kind of situation formation of this pattern doesn't make any sense. The reliability of this pattern decreases when it forms in overbought zone. The overbought zones indicate that the market is already at its high and the chances of continuation from here are negligible. Trading this pattern in such kinds of situation become difficult, therefore it is better to wait for proper bullish signal generated by technical parameters and price action to make entry in the market.
What is the Difference Between Bullish Harami and Bullish Engulfing Candlestick Pattern?
The Bullish Harami and Bullish Engulfing candlestick patterns are both the trend reversal candlestick pattern reversing the downtrend into uptrend. There are some notable factor which differentiat these pattern structurally and psychologically. The Bullish Engulfing candlestick pattern occurs when a large bullish candle engulf or held the previous bearish candle completely within itself on the other hand the Bullish Harami candlestick pattern forms when the first bearish candle of this pattern which is significantly larger than the next bullish candle, held the candle completely within itself just in its lower body part, like a pregnant woman carrying the baby in her body. Both the pattern being trend reversal used to revers the downtrend into uptrend, therefore the size of bullish candle visully representing the buying intereset holds more waitage, and in case of bullish engulfing pattern the size of the bullish candle, comparatively higher than the bearish, found to be more forceful and definitive in terms of reversal. In contrast, the Bullish Harami with lower bullish candle seggest more cautious and hesitant market sentiment. The size, shape, position and psychology behind the formation of these two pattern differentiat them clearly and making them suitable to different trading strategies.
Bullish Harami Candlestick Pattern
The Bullish Harami Candlestick Pattern is a double candle fomation, out of which first being part of downtrend it is bearish in nature with comparatively larger in size to the next bullish candle which is sign of initiation of uptrend. The pattern named as " Harami " after the pregnant woman, because, just like the pregnant woman first bearish candle held next bullish candle entirely within itself. This pattern formation generally suggest that the selling pressure is going to exhaust at the end of formation of this pattern. The small body of the second bullish candle reflects that there is indecision and lack of consensus between the buyers and sellers, which makes the pattern weaker than the engulfing pattern.
Bullish Engulfing Candlestick Pattern
The Bullish Engulfing Candlestick Pattern, on the other hand shows more appropriate signal of reversal and more decisive change in the market sentiments. Here's the size of second bullish candle is significant compare to previous candle, indicating more buying interest. Also, the first candle coverd-up entirely within the body of the second candle. The formation of this pattern, generally, follows a downtrend and highlight the sharp reversal in the market sentiment. The Bullish Engulfing Candlestick Pattern, tends to provide more accurate signal of reversal than the Bullish Harami Candlestick Pattern due to its strong bullish price action and its assertiveness in reversing the trend.
Need To Know
There are multiple candlestick pattern, holding different waitages in predicting the market sentiments. Out of which Bullish Harami hold important significance in predicting the reversals in the market. There are two candles contributing the formation of this pattern, out of which first being part of downtrend and second is of uptrend. If this pattern formation appeared satisfying certain conditions, it can be used as a great tool to identify probable move of the market while there are few conditions in which its occurance doesn't make as much importance. This pattern hold some similarity with Bullish Engulfing Candlestick Pattern which is also an powerful trend reversal candlestick pattern.FAQ's
1. Can a Bullish Harami Candlestick Pattern be effective on a shorter time frame, for intraday trading?- Yes, the Bullish Harami Candlstick Pattern is effective on shorter time frame as well, but its relibility gets impacted due to higher market noises on shorter time frame. Using this pattern with volume confirmation and other technical indicators improves its accuracy over shorter time frame.
2. How does the Bullish Harami Candlestick Pattern behaves in high volatile market condition?
- In high volatile market condition, the reliability of this pattern decreases due to erratic move in the market, in such kinds of situation it becomes little bit of difficult to solely relly on this pattern.
3. Are there any specific technical indicator that enhances the reliability of Bullish Harami Candlestick Pattern?
- Yes, the indicators like Moving Average, MACD and Bollinger Band can be used in cobination of this candlestick pattern to improve ist reliability.
4. What are the risk associated with trading the Bullish Harami Candlestick Pattern during earning annoucements and news events?
- Major events like budget, earning reports can overshadow technical parameters, encluding Bullish Harami. Sudden new-driven moves may render the pattern ineffective or lead to false breakouts.
