Bullish Harami Candlestick Pattern Analysis Trading Strategy and Backtest Definition & Meaning
This means that relying strictly on the pattern of the prices without regard to volume or other parameters will provide one with a wrong signal. The second candle should ideally be confined within the first so that trades are not performed with errors. While it is a relatively weak reversal signal on its own, the double top pattern can also generate false signals, particularly during periods of volatile or ranging markets. Traders using this pattern alone may be enticed to place a trade that will not result in lasting reversal and therefore lose money. It is more powerful when used alongside other technical indicators for instance volume breakout, RSI, and moving averages such as the exponentially weighted moving average. These tools add to the confidence in the pattern detected and also reaffirm the existence of reversal signals, which in turn give better qualities to the trading signals.
- They average a 55.25% win rate and 3.95% per winning trade across 5,624 trades.
- Traders must understand the broader market context while trading with harami patterns to ensure that they properly gauge trend direction, volume, and more.
- Our research confirms that you should trade the Bullish Harami Cross candle, which returns an average of 0.58% per trade, making it the 9th best-performing candle pattern.
- Nonetheless, when you are able to find the boundaries of the previous trend, Fibonacci support and resistance levels can help you confirm the trend reversal and find the right entry level.
What are the advantages of a Bullish Harami Candlestick?
Some traders also believe that variations are less reliable than the classic pattern, but research suggests otherwise. The harami cross, for instance, has been shown to have a 53% accuracy rate with better performance in bull markets, reaching 69% success rates under favorable conditions. The basic bullish harami is just the beginning of a family of patterns that share the same psychological foundation but offer different signals and trading opportunities. Understanding these variations can significantly improve your pattern recognition skills and help you identify setups that other traders might miss. In September 2024, Tesla’s daily chart displayed a textbook harami cross pattern that demonstrated why variation matters in pattern recognition.
TrendSpider is the best software for trading all candlestick patterns due to its integrated backtesting and pattern recognition. If you value a social community of traders sharing ideas and strategies, then TradingView is a great alternative. My groundbreaking research into the profitability and success rates of chart patterns and technical indicators is built on the most powerful backtesting platforms available. The second main disadvantage of the bullish harami pattern is that it is not advisable to use bullish harami candle this pattern in isolation. The bullish harami pattern can give false positive signals sometimes which could lead to losses if not used along with other technical indicators. One of the main advantages of the bullish harami pattern is the ease of spotting it on a price chart.
Compared to a standard Bullish Harami, the Harami Cross is generally considered a stronger reversal signal, especially when it occurs after a prolonged downtrend or at key support zones. CandleScanner’s extensive study of S&P 500 stocks from 1995 to 2015 found 27,862 bullish harami patterns, with a frequency of 4.4% and a false signal probability of 19% within five days. While this sounds promising, only 37% achieved “strong results” in the same timeframe. The pattern captures the exact moment when selling exhaustion meets tentative buying interest, when fear begins to give way to cautious optimism.
Spotting the Bullish Harami in Charts
For example, if the volume of the bearish candle is very high, it might indicate a final blowoff, as we talked about before. When the first candle of the bullish harami is formed, there is no sign of bullish market sentiment. Just as before, selling pressure is high and pushes the market even lower. With TrendSpider, you can effortlessly identify and execute trades, experiencing the swift and precise results you desire.
- We can then use these two levels to plan a potential long-position trade.
- This approach works best when you’ve other supporting factors, such as oversold RSI readings or strong support levels nearby.
- A candlestick chart typically represents the price data of stock on a single day, including opening price, closing price, high price, and low price.
- We realize that everyone was once a new trader and needs help along the way on their trading journey and that’s what we’re here for.
- Suppose John, a trader who was tracking the stock, spotted this candlestick.
This sets the stage for bullish reversal, as selling pressure appears to be waning. As the market is in a downtrend, market participants are mostly bearish. Sellers are dominating the market, and buyers wait for a signal that the bearish trend has come to an end. The figure presents that the biggest “problem” of the harami patterns is their first candle. On the chart, we can see that the market could not win with the Black Candle being the first line of the Bullish Harami pattern.
In conjunction with Bullish Harami patterns, it is advisable to use indicators such as relative strength index (RSI), moving averages, and rate of change (ROC). Yes, according to our research, the Bullish Harami Cross is an important candlestick pattern due to its 0.58% average trade profit and average winning trade of 4.0%. The Bullish Harami Cross proves to be the most reliable Harami pattern. Extensive analysis of 1,609 trades conducted on the 30 Dow Jones stocks over a 20-year period demonstrates an average profit of 0.58% per trade.
Harami patterns, being only two-candle patterns, provide limited information about market sentiment. Traders may need to rely on additional technical analysis or patterns to get a complete picture of market dynamics. Traders must understand the broader market context while trading with harami patterns to ensure that they properly gauge trend direction, volume, and more.
In doing so, the market shows clear intent by breaking above the high of the harami before going long. Also, the 54-76% win rate is because two-bar patterns have less inherent confirmation than three-bar patterns. Finally, many consider the harami as a ‘pause signal’ instead of a pattern that can generate a key turning point on its own. Assuming your trade moves in your favour, you should already have a smart plan to take profits. This would be the perfect time to exit to keep as much profit as possible in case the market turns. Another crucial component for when the harami has appeared is the confirmation candle/s or the candles that form afterward.