Subsequently, it was recommended to take a short position with a stop loss, in case the pattern did not confirm. Fortunately, the short position proved to be fruitful, yielding almost 10% profit by the end of the month. In these sections, we’ll look at two types of doji candles, the Dragonfly Doji and the Gravestone Doji.

• These targets can be placed at recent levels of support and resistance.
• The Harami Candlestick Pattern is considered a trend reversal pattern that can either be bullish or bearish, depending on the direction of the price action.
• Below, you can see how to identify the harami pattern on a trading chart.
• The following example will show you how you can combine the Harami setup with extra price action setups.
• You measure the size of the Harami pattern by taking the distance between the open and the close of the first candle (the longer one).
• As the harami candle itself a price action component one should always include the price action strategy option in our analysis.

On easy way to gauge the strength of a trend is to look at the ranges of the candles. If the candles leading up to the bearish harami are long and big compared to the other bars, you know that the market is quite strong and determined to move higher. The Bullish Harami shares similarities with other two-candlestick patterns, such as the Bullish Engulfing pattern.

Trading a Bearish Harami

If the open price is lower than the close price, the candle is green, and vice versa. We can see in the chart how after the pattern formation, the prices have gapped down confirming the reversal signaled by this pattern. As the harami candle itself a price action component one should always bullish harami include the price action strategy option in our analysis. However, the Know Sure Thing indicator broke the line in a bullish direction and had not yet confirmed a retracement. You should be aware that this indicator lags behind, so waiting for confirmation of the trend is advised.

You have an Inverted Hammer, followed by a Gravestone Doji, followed by a Spinning Top. The Dragonfly Doji is essentially a Hammer Candle, but with a narrower body. It can also be a bullish or bearish doji candle, but is considered the opposite pattern to the Gravestone Doji. Most indecision candles are referred to as dojis, spinning tops, or harami candles. They are all quite similar in that they visually represent a small bodied candle on a chart.

But towards the close, there is a glimmer of hope for the bulls as they rally back. Of course, this is an overgeneralization as there is buying and selling going on the entire time. But this does reveal something to the perceptive trader about the character of the candle.

In this article, we’re going to have a closer look at the bullish harami pattern. We’re going to cover its meaning, how you can improve its accuracy, and provide some examples of trading strategies that rely on the bullish harami pattern. Like any other technical pattern, the bullish harami is not foolproof and can sometimes result in false signals.

Dragonfly Dojis can show up in mid-trend as well, offering opportunities to add to positions. Stops can be set in the body of the Dragonfly Doji or lower depending on risk tolerance. In short, the key takeaway is that there is no decisive close at the highs, or the lows.

Advantages of Bullish Harami and Bearish Harami

Some traders see the second candle on the harami pattern as the significant trend reversal signal and check if other indicators tell them the same. Bullish and Bearish Harami are candlestick patterns that signal potential reversals in market trends. In conclusion, these patterns have proven to be valuable tools for making profitable trades.

Market Sentiment in a Bullish Harami Pattern

When combined, a bearish Harami pattern and a trendline break might be interpreted as a potential sell signal. A bullish Harami occurs at the bottom of a downtrend when there is a large bearish red candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. A bearish Harami occurs at the top of an uptrend when there is a large bullish green candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. Analysts looking for fast ways to analyze daily market performance data will rely on patterns in candlestick charts to expedite understanding and decision-making. Recent developments in the use of a Bullish Harami pattern include the use of machine learning and artificial intelligence algorithms to analyze market trends and make predictions. This can help to identify potential Bullish Harami patterns and other price action patterns more accurately.

Performance On All  75 Candlestick Pattern

Traders often combine it with trend lines, moving averages, or other patterns to confirm the potential bullish reversal and increase the probability of a successful trade. The bullish harami can be used in conjunction with other technical analysis tools and indicators to enhance trading decisions. The RSI and stochastic can help identify overbought or oversold conditions, which can indicate a potential reversal. Also, it is important to pay attention to volume, as an increase in volume when the price breaks above the pattern can confirm a reversal.

On the same intraday chart (BABA) from above, we see the healthy trend that followed our initial reversal. Take a moment and study this next chart to see how the handful of dojis we’ve pointed out lead BABA to higher prices. As you can see, it is all about the context, and all about the story behind the price and volume. However, it falls short after the Gravestone Doji dashes the hopes of the bulls. Because these are indecision candles, we need to wait for confirmation.

Initially, we aim for a price move equal to the size of the pattern. However, after accounting for two higher bottoms on the chart (first two blue arrows), we realize that this might be the beginning of a fresh bullish trend. In this case, we have a longer bearish candle during a bearish trend and a second bullish candle that is smaller and fully engulfed by the previous candle. The confirmation will come if we get a third bullish candle that closes above the close of the previous bullish candle. Either way, just like with any other market indicator, it’s better not to use the harami pattern alone.

How do you trade bullish harami?

In short, patterns like the bullish harami should be seen as small indications of where the price is headed next that need to be validated with other methods as well. A Bullish Harami indicates a potential shift in market sentiment, signaling the possibility of a bullish trend following a bearish trend. Some other bullish reversal patterns include the Hammer, the Bullish Engulfing, and the Piercing Line patterns. These patterns also suggest a potential shift from a bearish to a bullish trend.