Harami Candle - Bullish

The bullish harami candle is one of the many Japanese candlesticks that is found at the bottom of a downtrend, and is the reverse of the engulfing pattern. (See the bullish engulfing pattern versus the bearish engulfing pattern). The Japanese definition of this candle means pregnant woman or body within. When identifying a bullish harami candle the body of the first candle must be the same color as the current trend and should be a long red (or black) candle. The body of the second candle is a green (or white) candle and it opens and closes within the body of the previous day’s candle. Additionally, as mentioned above, the downtrend must have been evident for a good period of time with a long red candle occurring at the end of the trend. The presence of this candle indicates that the trend is over. Also, the location and the size of the second candle will determine the magnitude of the reversal. Basically, the smaller the second green candle, the more likely the reversal is to occur.

What does this bullish candlestick pattern indicate is happening in the markets?
This bullish signal occurs during a downtrend when the bulls step in and open the price higher than the previous day’s close. The stock gaps up as the bulls continue to preside. This is a result of investors that have held their positions, in hopes for a reversal, finally giving in and selling, thus indicating that the trend is over. In other words, the bears are concerned and the shorts begin to cover their positions. The bulls are then able to close the candle higher into the previous day’s body. To confirm this bullish candlestick pattern, on the following day the bulls must stay put while the bears move on. Basically, a strong day after convinces everyone that the trend may be in a reversal. The bullish harami candle signals to investors that it is a good time to enter into a long position.

When identifying the bullish candle it is important to note two things. First, the higher the green candle closes up on the red candle, the more convincing it is that a reversal has occurred. Second, the longer the red candle and the green candle the stronger the reversal.

There are additional signals necessary to learn about when studying candlestick charts. Japanese candlesticks have been in use for 400 years, they are reliable, and they provide traders with valuable insight to potential price movements. First you should learn about the doji candlestick chart, and then move on to more complex signals such as the candlestick hammer signal, the inverted hammer candlestick, the dark cloud cover, and the candlestick piercing pattern. There are additional candlestick patterns that every trader should learn about and these patterns will be discussed in future articles to come. Learn how to increase your profits through candlestick trading online and join me in my 2-Day Trading for Profits Online Training Clinic.

Continue your Japanese Candlestick education and read about the bearish candlestick harami.