Bullish and Bearish harami pattern: How to Identify on the Chart and Use in Trading

   ✓   the bullish harami suggests that the trend will shift to an upward movement;
   ✓   the bearish harami indicates that prices may move downward.

In this article, we will examine how effectively classic candlestick patterns can be used in modern trading.

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A bullish harami is made up of two candles:

• the first is a large bearish candle;
• the second is a smaller bullish candle that opens and closes within the body of the previous one.

 A bearish harami is the reverse:

• the first is a large bullish candle;
• the second is a smaller bearish candle that also opens and closes within the body of the first.

Below are examples of bearish (1) and bullish (2) harami patterns that formed in the fall of 2023 on Amazon (AMZN) stock’s daily chart.

1. Shortly after the bearish harami appeared, a downtrend formed that pushed the price below $125, reaching the lowest levels in several months;
2. Shortly after the bullish harami appeared, a sequence of five bullish candles emerged, leading to a test of the bearish gap from September 21.

Please note that applying standard rules for trading harami patterns can trigger stop-losses. But let us take things step by step.

The main risk is that the small candle may not signal a full reversal but rather a temporary pullback, with the trend possibly continuing afterward.

How can you tell which outcome is more likely? Analyzing volume data with professional footprint charts can provide valuable insight.

1. the first is a large candle that fully contains the second; 
2. the second is a doji, a candle where the opening and closing prices are nearly identical (forming a cross).

An example of a harami cross. In September 2024, Tesla’s (TSLA) daily chart showed a harami cross pattern (1), where the first candle is a wide bearish one, and the second, located inside, closely resembles a doji.

This time, the analysts’ expectations were correct: the price did not fall below the doji but instead began to rise, leading to a bullish breakout above the resistance level near $133.

1. Wait for the pattern to appear after a period of declining prices;
2. Enter a long position when the high of the small candle is broken;
3. Place a stop-loss below the low of the first large candle;
4. Ensure the profit target is greater than the risk taken.

☑  Classic rules for trading the bearish harami:

1. Spot the pattern after a period of rising prices;
2. Enter a short position when the low of the small candle is broken;
3. Set a stop-loss above the high of the first large candle;
4. Ensure the profit target is greater than the risk taken.

Now you can see why following these classic trading rules for the bullish and bearish harami triggered stop-losses on the AMZN chart earlier (although it could have also led to a profitable trade).

But could harami setups prove to be more effective in the long run?

✓  Bullish harami pattern:

• Reversal probability: 53%.
• Tip. The bullish harami that appear near a 4-month low yield the best results.
• Best outcome: a rise of 4.05%

✓  Bearish harami pattern:

• Reversal probability: 47%, meaning the probability of the bullish trend continuing is higher.
• Tip: The bearish harami that appear near the upper boundary of a trading channel perform best.

Studies conducted by CandleScanner on S&P500 daily stock charts from 1995 to 2015 provide more promising results.

✓  Bullish harami pattern:

• Total patterns found: 27,862, with an occurrence frequency of 4.4%.
• False signal probability: 19% within the next 5 days.
• Chance of achieving strong results: 37% within the next 5 days.
• Over a 10-day period, the results show a slight improvement.

✓  Bearish harami pattern:

• Total patterns found: 33,846, with an occurrence frequency of 5.3%.
• False signal probability: 16% within the next 5 days.
• Chance of achieving strong results: 29% within the next 5 days.
• Results tend to improve over a 10-day period.

According to Candle Scanner statistics, traders are more likely to see positive outcomes rather than losses when trading the harami pattern.

In this case, trading the bullish harami using classic rules proved to be profitable:

• entering a long position when the second candle was broken out on September 9 (2);
• setting a stop-loss below the low of the first candle from September 6 (3);
• a take-profit is at the previous resistance level (4).

The red arrow points to the testing of a cluster of large volumes on September 11, formed around the low of the September 6 candle. For a cluster chart analyst, this test could have provided a long entry setup with the same profit target but significantly lower risk.

To gain more reliable confirmations, you should:

• switch the chart from candlestick to cluster;
• select the Volume/Volume footprint mode;
• in the cluster settings (Ctrl+S), overlay the candle and adjust the thickness of the elements on the chart.

• open a short position during the breakout of the second small candle (1);
• set a stop-loss above the large candle (2);
• identify the nearest target for profit at the previous resistance level around $625, which was broken.

The stop-loss was triggered the next day, but the profit target was not reached for several days. In this case, the bearish harami indicated only a short-term pullback within a developing uptrend.

Volume analysis could have helped reduce the risks associated with opening a short position. On May 23, the decline occurred on low volumes (3), signaling a lack of sellers (No Supply, VSA). They were also clearly in the minority during the breakout on May 20, as indicated by the lighter clusters within the candle (4). This zone remained intact from May 31 to June 4.

The red arrow marks a pattern that could have become a bearish harami if the lower shadow had been shorter.

What type of pattern is harami?

The harami is a reversal pattern that signals a possible change in the trend’s direction. It can be either bullish or bearish.

What is a bearish harami?

A bearish harami is a reversal pattern on a candlestick chart. It consists of a large bullish candle followed by a smaller bearish candle contained within the first one.

What is a bearish harami cross?

A bearish harami cross is a variation of the bearish harami pattern where the second candle is a doji, meaning its opening and closing prices are almost at the same level.

What does the harami pattern indicate?

The harami pattern suggests a potential reversal of the current trend, signaling a shift in market sentiment. A bearish harami points to a possible transition from a bullish to a bearish trend, while a bullish harami indicates the opposite.

What is the harami pattern in crypto?

The classic harami pattern is most effective on daily candlestick charts where gaps can occur. However, it is less applicable to the cryptocurrency market since coins trade 24/7.

Is the bullish harami pattern reliable?

The reliability of the bullish harami pattern is questionable. While CandleScanner data shows a false signal in 19% of cases, research by Thomas Bulkowski suggests it fails 47% of the time. To improve trading accuracy with harami patterns, it is recommended to use additional tools and approaches, such as footprint pattern analysis.

• Footprint (cluster) charts;
• Market profiles.

You can test how successful your harami and cluster trading strategies could be by using the ATAS Market Replay simulator. This platform module uses historical data to recreate real-time trading conditions, enabling you to sharpen your trading skills without any financial risk.

To try the simulator, download the ATAS platform for free, install, and launch it, and then:

1. Open a chart of a financial instrument.
2. Click on the Market Replay button in the main ATAS menu.
3. Activate the Replay mode (the icon should turn green).
4. Adjust settings like date and data type if needed.
5. Start the playback and monitor the appearance of the candlestick pattern. Analyze the footprints to learn how to find strong signals for entering a position.

• Following the classic rules for trading the harami here would likely have been profitable;
• The low of candle 7 tests the key volume level from candle 6;
• The low of candle 8 tests the volume level from candle 7.

This example highlights how developing skills in cluster chart analysis can elevate your candlestick pattern trading, even if you find these patterns outdated.

✔  Frequency: CandleScanner data shows that harami patterns appear on daily charts 4-5% of the time, making them fairly common in candlestick analysis.

✘ Unclear profit targets. Traditional trading literature suggests identifying support and resistance levels or calculating profit targets based on stop-loss size. This can be particularly challenging for beginners.

✘ Large stop-loss levels. If the first candle in the harami pattern is too wide, it may lead to excessively large stop-loss placements.

Download ATAS. It is free. Once you install the platform, you will automatically get the free START plan, which includes cryptocurrency trading and basic features. You can use this plan for as long as you like before deciding to upgrade to a more advanced plan for additional ATAS tools. You can also activate the Free Trial at any time, giving you 14 days of full access to all the platform’s features. This trial allows you to explore the benefits of higher-tier plans and make a well-informed purchasing decision.