What is a Bullish Harami Pattern?
The Bullish Harami is a two-candle bullish reversal pattern that forms at the bottom of a downtrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →. It is characterized by a large bearish candle (first day) followed by a small bullish candle (second day) that is completely contained within the real body of the first candle.
In Western technical analysis, this is also referred to as an Inside Bar pattern.
Pattern Structure
To classify a formation as a Bullish Harami:
- Prior TrendTrendThe general direction in which a security or market is moving over time.Read full glossary entry →: Must occur after an established downtrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →.
- Candle 1 (Mother Bar): A large red (bearish) candle that continues the downward trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry →.
- Candle 2 (Inside Bar): A small green (bullish) candle whose real body is completely nested within the body of Candle 1.
- Range: Ideally, the entire high-low range of Candle 2 is within the body of Candle 1, though only the body-to-body containment is strictly required.
Psychology Behind the Pattern
The psychology of a Bullish Harami is a story of momentum halting and contraction:
- Bearish Continuation: Day 1 continues the downtrend with a strong bearish close, confirming the sellers' dominance.
- Momentum Halt: Day 2 opens higher (a gapGapAn area on a chart where no trading activity took place, visible as an empty space between two consecutive candles.Read full glossary entry → up inside the previous day's body), representing a sudden pause in selling pressure.
- Volatility Contraction: The price trades within a tight range all day, closing slightly higher as a small green candle. The sellers are unable to push price lower, indicating they are exhausted.
- Result: The contraction signals that the trend is shifting, preparing the market for a bullish breakoutBreakoutA price movement through an established support or resistance level. A breakout is often accompanied by increased volume, signaling strong momentum.Read full glossary entry → on the following day.
Identification Rules
- Confirm Containment: Ensure the second candle's open and close are completely within the first candle's open and close bounds.
- Body Size Comparison: The first candle should have a large body, and the second should have a small body (ideally less than 25% of the first candle's size).
- Verify Trend: Only trade this pattern after a clear downtrend or at major supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → lines.
Trading Setup
- Entry: Buy on the breakoutBreakoutA price movement through an established support or resistance level. A breakout is often accompanied by increased volume, signaling strong momentum.Read full glossary entry → above the high of the first (large bearish) candle, or wait for a strong confirmation close above the Harami range.
- Stop-Loss: Place the stop-loss orderStop-Loss OrderAn order placed with a broker to sell an asset when it reaches a specific price, designed to limit a trader's loss on a position.Read full glossary entry → just below the low of the first (large bearish) candle.
- Target: Target the next local resistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → level or a key moving average.
Common Mistakes
[!WARNING]
- Trading in Consolidations: Do not trade inside bars that form in the middle of a sideways range, as they just represent noise.
- Skipping Confirmation: Entering a trade before price breaks out of the mother bar's high. If price breaks lower, the downtrend continues and the setup is invalidated.