Bullish Harami Candlestick Pattern for Trend Reversal Strategies

Technical Analysis

Previous lesson Next lesson

MarketopediaTechnical AnalysisBullish Harami Candlestick Pattern for Trend Reversal Strategies

The Harami Pattern

Before you jump to conclusions, ‘Harami’ is not the Hindi word you’re thinking about 😉 In actuality, it is an old Japanese term that means ‘pregnant’. Looking at the candlestick formation should explain why this word was chosen.

The harami pattern is composed of two candles. The first one is usually long, and the second has a much smaller body, and in most cases, they differ in colour. This formation can indicate a potential reversal of the current trend. It can be either a bullish or a bearish variant.

The Bullish Harami

The bullish harami is indicative of a potential shift in trend, as it appears at the bottom of the chart. It forms over two days, similar to the engulfing pattern.

In the chart, the bullish harami pattern has been marked out.

The market is on a downward trajectory, with prices dropping and the bears firmly in power.

On the first day of P1, a red candle with an all-time low is formed, further strengthening the bear’s place in the market.

On P2, the market opens at a price greater than the day before’s close, causing fear among the bears as it is not what they had expected.

The market increased in strength on P2, ultimately forming a blue candle in the close. Despite this, the closing price didn’t manage to exceed P1’s open level.

The price action on P2 forms a small blue candle contained within the larger red candle of P1.

The innocuous small blue candle, when it appears out of the blue, can be startling and unexpected, causing alarm.

The blue candle provides motivation for the bulls to take up long positions while also causing unease amongst the bears.

The expectation is that a sense of fear among bears will spread quickly, which should give bulls an added boost. This typically drives prices even higher. Therefore, it’s wise to consider taking a long position with the stock.

The following are the trade setup for bullish harami:

We must take advantage of the bullish harami formation and hold our positions for long-term gain.

Those with an appetite for risk may consider entering into a long trade when the P2 candle is closing.

Risk takers should check certain criteria to verify if the P1 and P2 shape a bullish harami pattern.

To ensure the highest level of performance, it is important that the start of P2 be higher than the end of P1.

At 3:20 PM, the market price should be lower than it was at P1’s opening.

If both conditions are met, it is possible to confirm that P1 and P2 have created a bullish harami.

The risk-averse should wait for the day after P2 to close, ensuring it forms a blue candle before initiating a long trade.

The stoploss for the trade will be the lowest point in the pattern.

Once a trade has begun, the trader must wait to see if their order will be fulfilled or their stop loss activated.

This chart shows a candlestick pattern that is not a bullish harami. Even though the encircled candles look like this particular formation, the nearly flat prior trend prevents us from defining it as such.

In this case, a bullish harami pattern had emerged, but the stop loss triggered and caused a deficit.

Marketopedia

Technical Analysis

Copy link

Previous lesson Next lesson

Get the app

Products

HotBox

By signing up, You agree to receive communication (including transactional messages) or by way of SMS/RCS (Rich Communication Services) and/or E-mail or through WhatsApp from the StoxBox in connection with the services or your registration on the platform. We may contact you telephonically or through emails to introduce new product/service offerings and in case of you do not want us to contact you, you are requested to actively opt out.

Disclosures and Disclaimer: Investment in securities markets are subject to market risks; please read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Past performance is not indicative of future results. Details provided in the above newsletter are for educational purposes and should not be construed as investment advice by BP Equities Pvt. Ltd. Investors should consult their investment advisor before making any investment decision. BP Equities Pvt Ltd – SEBI Regn No: INZ000176539 (BSE/NSE), IN-DP-CDSL-183-2002 (CDSL), INH000000974 (Research Analyst), CIN: U45200MH1994PTC081564. Please ensure you carefully read the Risk Disclosure Document as prescribed by SEBI | ICF

Attention Investors

Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
Pay 20% upfront margin of the transaction value to trade in cash market segment.
Investors may please refer to the Exchange’s Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020 and NSE/INSP/45534 dated August 31, 2020 and other guidelines issued from time to time in this regard.
Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month.

Issued in the interest of Investors

Communications: When You use the Website or send emails or other data, information or communication to us, You agree and understand that You are communicating with Us through electronic records and You consent to receive communications via electronic records from Us periodically and as and when required. We may communicate with you by email or by such other mode of communication, electronic or otherwise.

Investor Alert:

Prevent Unauthorised Transactions in your demat account –> Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from CDSL on the same day………………….issued in the interest of investors.
KYC is one time exercise while dealing in securities markets – once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor’s account.
*All subscription pricing plans mentioned across the website are exclusive of 18% GST.

BP Equities Pvt Ltd – SEBI Regn No: INZ000176539 (BSE/NSE), INZ000030431 (MCX/NCDEX), IN-DP-CDSL-183-2002 (CDSL),
INH000000974 (Research Analyst) CIN: U67120MH1997PTC107392
BP Comtrade Pvt Ltd – SEBI Regn No: INZ000030431 CIN: U45200MH1994PTC081564

For complaints, send email on investor@bpwealth.com

Get the App Now