What is a bullish harami?
- Harami implies pregnant in Japanese and a Harami Pattern looks like a pregnant lady, with the 1st candle being a big long, bearish or bullish candle. The second candle, on the other hand, is like a small, pot belly alongside the first candle. This pattern resembles a pregnant lady.
- A Bullish Harami pattern occurs after a downtrend, a long-term trend or a technical rally. The opposite of the Bullish Harami is the Bearish Harami and is found at the top of an uptrend.
- The Harami candle has an inside bar with a small range.
When an investor sees a harami candle it usually leads to volatility expansion in the direction of the trend.
How must one identify the bullish harami?
One must first identify an existing downward trend.
- Then he or she must look for signals to see that the momentum is slowing or reversing.
- One must also ensure that the body of the small green candle measures no more than 25% of the previous bearish candle.
- One must observe that the entire bullish candle is enclosed within the length of the previous bearish candle’s body.
- Thereafter, look for confluence with the help of supporting indicators/ key levels of support.
What are the advantages of the bullish harami?
The advantages are as follows – - It is easy to identify for novice traders. - This shows attractive entry levels as the pattern appears at the start of a potential uptrend. - It can offer a highly attractive risk to reward ratio as opposed to the Bullish Engulfing pattern.
What are the limitations of the bullish harami?
The disadvantages are as follows – - The investor cannot use this as a sole measure to base investment decisions. Stocks should not be traded based on its formation alone. - Where the pattern occurs within the trend is crucial – it must ideally appear at the bottom of a downtrend. - The use of this requires a very good understanding of technical analysis of indicators.
