BULLISH HARAMI
Definition
This pattern consists of a black body and a small white body that is completely inside the range of the black body. When outlined, the pattern resembles a pregnant woman, which is not coincidental. The term "Harami" is derived from an old Japanese word meaning "pregnant." In this analogy, the black candlestick represents "the mother," and the small candlestick represents "the baby."
Recognition Criteria
1. The market is currently defined by a dominant downward trend
2. On the first day, a black candlestick is observed.
3. The white body that is formed on the second day is completely engulfed by the body of the first day.
Pattern Requirements and Flexibility
The pattern consists of two candlesticks, in which the first day’s black candlestick engulfs the following day’s white candlestick. The first one has to be a normal or long black candlestick. Either the body tops or the body bottoms of the two candlesticks may be at the same level, but whatever the case, the white body should be smaller than the previous black body.
Trader’s Behavior
The Bullish Harami indicates a disparity in the market’s condition. It typically occurs during a downtrend and bearish sentiment, characterized by heavy selling pressure as evidenced by a black candlestick, reinforcing the bearish outlook. However, on the following day, prices open higher or at the previous day’s close, causing concern among short traders. This results in the covering of many short positions, which pushes prices higher. As latecomers attempt to short the trend they previously missed, the rise slows, forming a small white (or green) candlestick. This pattern may signal a trend reversal, as the small real body on the second day suggests diminishing bearish momentum.
Buy/Stop-Loss Levels
The confirmation level is established at either the last closing price or the midpoint of the first black body, whichever is higher. For confirmation, prices must exceed this level.
The stop-loss level is established as the lower of the last two lows. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.