Bullish Harami Candlestick Pattern

Bullish Harami candlestick pattern is a bullish reversal pattern which usually forms at downtrend and indicates that bulls are now trying to take control from bears. It is more stronger if it gets formed at any prevailing strong support zones.

Definition

This is a two day candlestick pattern. This pattern can be identified by a small green candle formed within the body of the previous bearish red candle appearing at the downtrend. The green body high & low shadows doesn’t necessarily to remain inside the previous day’s candle range, the wicks of green body may be higher or lower than previous day’s high and low of the red body but green body should remain within the red body completely. This becomes important bottom reversal point. It indicates that in a downtrend underlying price shows some bullishness and bulls were able to push the price up.

Fig : Bullish Harami Candlestick Pattern

Criteria

  • Bullish Harami candlestick formation should be at downtrend/bottom.
  • Length of the candle is not that important, but the body of green candle should be inside the body of red candle indicating good buying interest/volume.
  • The previous day close and next day open can also remain same making it a twizzer bottom.
  • Wicks are irrelevant, only candle body should matter for pattern formation.

 

Trade Psychology

As the downtrend continues, lower selling volume/pressure is observed indicating seller’s interest is fading away, the next day market opens higher than previous close or equal to previous close which indicates probable end of downtrend and during the day this reversal gains the momentum and bulls take total control. Bulls overcome bears and close security’s price higher but below previous day’s open. The higher the buying volume the more strongly will be the reversal.

There can be various times when a trader/investor can buy using the bullish Harami candlestick pattern.

  • A trader/investor might buy the security when price rose higher after the day of bullish Harami candlestick pattern, closing above the downward slope or above the close of bullish Harami candle. Bullish Harami candle and Trendline break is a combination that could give buy signal to traders.
  • Generally Bullish Harami pattern follows gap up next day, so it makes it good to go for Buy Today, Sell Tomorrow strategy during Intraday trading at the closing hour.
  • A trader/investor might buy the security next day after confirmation of the pattern by confirming that its truly a reversal point and not just another short covering rally. So buying will only happen when security prices break harami candle high next day or in coming days as shown in below image;

Fig : Trading Bullish Harami

As shown in above figure, Nifty made Bullish Harami candlestick pattern on 24th May 2018 and closed at 10513, Next day it saw gap up and price rose further. On 24th May, it also broke the downward slope indicating buy signal.

Significance of Past Bullish Harami Candle

Once Bullish Harami candle formed on charts at important swing low/support positions, it becomes important in future as well. The High & Low of Bullish Harami candle becomes good support point in future as bulls will try to keep the security’s price above this candle from where they pushed it up. It can also act as resistance zone if current prices are lower than past bullish harami candle at previous swing low as bears will not let the bulls take control again, as this is the zone where bulls are expected to take control.

 

How To Trade

Positional Trades

If you are doing EOD analysis and you find Bullish harami candles in any daily or weekly chart then as per trader type 2 mentioned above you should look for confirmation either slope breakout or next day candle. After getting confirmation you can trade on the underlying positionally after finding possible resistance levels as targets or you can filter our screener during the day to find out which underlying is forming bullish harami pattern during the day.

Fig : Bullish Harami Pattern in HINDUNILVR

In above chart of Hindustan Unilever, a Bullish Harami candlestick satisfying our criteria is formed on 08th April 2019. It is formed after downtrend. If you observe the harami candle it is doji within the body of previous day candle and also broke the downward slope, so it is very strong sign of bulls again getting ready to take control. On seeing this positional traders can take position on next day opening whenever price trades lower than the open price with stop loss being low of harami candle. As mentioned above the highs and lows of Harami candle can work in future as well and it can be seen in above chart that the low of Harami candle is still protected and working as good support zone till now. Another reversal candlestick formation at this zone would give another buy signal without any confirmation.

Intraday Trades

If you find bullish harami formation in any underlying whose prices are falling since start of market opening then it gives sign of reversal. This can happen in any time frame. The use of pivot points for this purpose is more helpful. Suppose you found some scrip which is down by more than 1.5% or 2% and testing it’s levels at Pivot Point S2 or S3 (for some scripts this can happen at any pivot points, main importance is that script should be in downtrend), then you can keep it into your watch list and keep tracking it for the day. If you find any harami setup explained above then it gives you high probability to go long.

Using our screener you can scan which underlying is forming bullish harami pattern at around 3-3.15PM and same underlying can be taken as BTST as next day it might see higher opening.

When not to Trade 

You might see lot of bullish harami candlestick pattern in a same chart but not all of them are tradeable. Until and unless they do not satisfy the criteria described above, it should not be traded. See below example;

Figure: Bullish Harami Pattern on Nifty

In above chart, recently ie on 14th May 2019, Nifty has made a bullish harami pattern but it failed to close above the downward slope. Next day ie on 15th May it again failed to break it neither it closed above high of bullish harami candle. It is not satisfying the criteria so it is not tradeable for safe traders.

However, as mentioned above the high and low of harami candle acts as good support and resistance, Nifty has not broken the low of harami candle and it can be bought again with stop loss below harami candle low, though it can be risky for safe traders.

Another point to note is that on 15th May Nifty opened higher than previous close of harami candle. So during intraday trading at closing if one can guage that it was forming bullish harami candle, it could have been taken as BTST.

BTST means Buy Today and Sell Tomorrow. It should be done at closing today and opening tomorrow.

How to find such scripts

For EOD analysis and finding scrips making harami patterns, Click Here

During intraday trading, Click Here

To get access to Intraday Sheet Click Here

 

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