swing trading

Bullish Harami Candlestick Pattern - How It Works and How Traders Can Use It

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When it comes to the stock market, sometimes you might hear the term "bullish harami pattern" mentioned. It refers to a type of stock chart candlestick pattern that is popular among active stock traders.

This article will explain what a bullish harami candlestick pattern is and how traders might be able to benefit from using it.

 

What Exactly Is a Bullish Harami Candlestick Pattern?

A bullish harami pattern is a type of price candlestick pattern found on a stock chart.

Stock charts show how a stock's price has changed over time, and that price activity can be conveyed in different ways. One of those ways is with price candlesticks, or price candles, which are also sometimes referred to as price bars.

Each price candle represents a pre-specified period of time, such as one day or one hour. Candles give information that might be pertinent to an investor, including the open price, close price, high price, and low price of the period.

A bullish harami candlestick pattern consists of two candles:

 

 

That image is a graphical icon that gives an idea visually of what a bullish harami pattern looks like.

You can see that the first candle is red and the second candle is green.

Also, the body of the first candle is tall enough to engulf the second candle altogether.

 

What Does a Bullish Harami Candlestick Pattern Look Like On A Stock Chart?

The image below is an example of a bullish harami pattern as shown on one of our stock charts.

 

 

The bullish harami pattern is shown in the two candles at the very far right of the stock chart.

The high price of the most recent candle is lower than the opening price of the prior day. And the low price of the most recent candle is higher than the closing price of the previous day.

 

How Do Traders Use a Bullish Harami Candlestick Pattern?

A bullish harami pattern suggests that there was strong downward selling pressure during the initial candle, but by the second candle, buyers had exerted enough power to create a gap up and generate a green candle.

As a result, it might indicate a potential reversal of a downtrend or a slowing down of downtrend momentum.

If the stock has been in a downtrend, and then a bullish harami candlestick pattern appears, a trader could try to capitalize by buying the stock.

 

Is a Bullish Harami Pattern Bullish or Bearish?

Bullish harami patterns are considered bullish, as the name implies, meaning that the presence of a bullish harami pattern on a stock chart might be an indication that the stock price is on the verge of going up.

That level of bullish sentiment might be more pronounced if the bullish harami pattern occurs after a downtrend, as the pattern is commonly seen as a reversal signal.

Some traders wait to see what happens with the price candle that follows a bullish harami pattern to confirm their suspicion of it being bullish. If a green bar occurs afterward, that might be seen by some as the confirmation they're looking for.

 

How Do You Find Stocks That Have Bullish Harami Candlestick Patterns?

You can find them by using our Bullish Harami Pattern scanner. It's a free tool we offer here at Stock Market Guides. It uses our proprietary scanning technology to find stocks that just had a bullish harami candlestick pattern on a daily chart.

Here's how the scanner results look:

 

That tool ensures that you don't have to waste time flipping through stock charts manually to find stocks with a bullish harami candle pattern.

 

Example of a Bullish Harami Pattern Trading Strategy

For this example of a bullish harami pattern trading strategy, we're going to use a daily chart, where each price candle represents one day of price activity. That means it would be a swing trading strategy where the trade is designed to last more than one day but not for the long haul.

 

Entry for the Bullish Harami Pattern Trading Strategy

The entry for this Bullish Harami Pattern trading strategy will be as follows:

The entry criterion for our Bullish Harami Pattern trading strategy is very simple.

Exit for the Bullish Harami Pattern Trading Strategy

There are a lot of possibilities here for the exit.

For any given trading strategy, it can be helpful to define three different criteria for the exit: profit target, stop loss, and time limit.

Not everyone uses all three, and that's totally fine. Ultimately, you can set these values however you want. But for the purposes of this strategy example, we will define all three:

 

1. Profit Target

We will set the profit target at 1.5 ATRs away from the entry price.

ATR is an indicator in the stock market that measures a stock's recent price volatility. Most trading platforms have it available as an indicator you can enable.

Our profit target criterion indicates that we will take the ATR value of the stock, multiply it by 1.5, and add it to the price we paid when we bought the stock. That will be our profit target, and we can set up a sell limit order at that price.

2. Stop Loss

We will set the stop loss at 3 ATRs below the entry price. This means we take the ATR value of the stock, multiply it by 3, and subtract it from the price we paid to buy the stock.

That will be our stop loss, and we can set up a stop order at that price.

3. Time Limit

We will set the time limit as one week since this is a swing trade. If the stock has not hit either the profit target or stop loss by the time limit, then we will close the trade manually at the opening bell seven calendar days after entry.

 

How Well Do Bullish Harami Candlestick Patterns Actually Work?

The idea of a bullish harami pattern trading strategy sounds nice to many people because it offers a clear, easy-to-understand way to find a trade setup.

But does it actually work? Can traders indeed generate profits by trading bullish harami patterns?

That's exactly what our company can help answer for you, since our scanner technology has allowed us to do our own research on that precise question.

The answer is that trades based on a bullish harami pattern are not always profitable, but for certain stocks they might indeed have a track record of success according to our backtest research.

Here is some data that shows how a proprietary bullish harami candle trading strategy we created has performed historically according to backtests:

 

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Anyone who signs up for our swing trading scanner service will be able to see stocks that qualify for that trading strategy in real time.

 

Learning More About Bullish Harami Patterns

You can contact us any time if you would like to ask any questions about bullish harami candlestick patterns or anything else related to the stock market.