How to trade the Bullish Harami Candlestick Pattern in Forex

Raed Nazir Ahmed
Mar 27
4 min read

The use of technical analysis in Japan dates back to the 17th century, when traders used it to navigate the rice market. Although these early techniques differed from the U.S. methods popularized by Charles Dow around 1900, many of the underlying principles were similar.

In the 18th century, Japanese rice trader Munehisa Honma analyzed how rice prices fluctuated based on supply, demand, and market sentiment. He created candlestick charts as a visual tool to display price movements, using different colors to show rises and falls. Over time, these charts evolved and are now a staple in trading, helping traders spot patterns and make informed decisions about market trends.

The Meaning of the Bullish Harami Pattern

The Bullish Harami is a two-candle formation that appears at the end of a downtrend, indicating a possible reversal. The first candle is large and bearish, followed by a smaller bullish candle that fits entirely within the range of the first. The term "harami" means "pregnant" in Japanese, symbolizing how the smaller candle is enclosed by the larger one.

This two-candle setup, which can occur over different timeframes (such as two days on a daily chart or two hours on an hourly chart), reflects a decrease in selling pressure and hints that buyers may be starting to take control. Consequently, many traders see the Bullish Harami as a signal to buy.

The inverse pattern occurs at the end of an uptrend, where a bullish candle is followed by a larger bearish candle, hinting at a potential drop in prices. Recognizing the visual distinctions between these patterns is crucial for accurate chart analysis.

What Is the Bullish Harami Cross?

The Bullish Harami Cross is a variation where the second candle is not a small bullish one but a Doji, meaning the opening and closing prices are nearly the same. This formation suggests even greater uncertainty and a higher potential for a trend reversal.

Structure of the Bullish Harami Pattern

To identify a Bullish Harami, focus on the size, positioning, and color of the candles:

First Candle: This is a bearish candle that signals ongoing downward momentum.
Second Candle: This candle opens above the close of the first but closes within its body. Its low is higher than the low of the bearish candle, and its high is lower than the high of the bearish candle. Typically, this bullish candle is about 25% the size of the first.
Color Significance: The bearish candle is generally depicted in a darker hue (often red) to indicate selling pressure, while the bullish candle is shown in a lighter color (often green) to represent buying pressure. This contrast helps signal a possible shift in market sentiment.

Steps to Identify the Bullish Harami

Confirm the Downtrend: Look for a prevailing downward trend where prices have been falling.
Identify the Pattern: Locate a formation where a large bearish candle is immediately followed by a much smaller bullish candle that is completely contained within the body of the bearish one.
Signal the Reversal: This pattern suggests that the bearish momentum is waning, and a reversal toward a bullish trend might be on the horizon.

Spotting the Bullish Harami on a Chart

To spot this pattern:

Begin by identifying a downtrend.
Look for signs that the downward movement is slowing or potentially reversing, which can be supported by indicators such as a bullish moving average crossover or stochastic oscillators.
Verify that the small bullish candle is no more than 25% of the size of the previous bearish candle and fits entirely within its range.
Enhance the pattern’s reliability by confirming it with additional technical indicators or support/resistance levels.

Real-World Examples

EURUSD

Suppose you’re analyzing EURUSD. One day, the price opens at 1.1000 and drops to close at 1.0900, forming a long bearish candle. The next day, the price opens at 1.0890 and closes at 1.0910, creating a smaller bullish candle that fits within the body of the previous day’s candle. This suggests that sellers were dominant on the first day, but buyers are starting to enter, potentially signaling an upcoming price increase toward 1.0950 or higher.

GBPJPY

Consider GBPJPY: On one day, the price starts at 150.00 and falls to 148.50, forming a long bearish candle. The following day, it opens at 148.40 and closes at 148.70, resulting in a smaller bullish candle contained within the previous candle’s range. This pattern indicates that while strong selling pressure was present, buying activity is beginning to pick up, which might encourage traders to buy at 148.70, anticipating a move towards 149.00 or beyond.

Trading the Bullish Harami Pattern

To trade the Bullish Harami effectively:

Identify the Pattern: Look for the formation at the end of a downtrend.
Confirm the Reversal: Use additional momentum indicators like MACD, RSI, or Stochastic to validate that a reversal is likely.
Enter the Trade: Wait for the next candle to close above the high of the previous bearish candle, which signals the potential start of an upward trend.
Risk Management: Place a stop-loss order just below the lowest point of the bearish candle in the pattern to minimize potential losses.

Combining the Bullish Harami with other technical indicators, such as Fibonacci retracements for support and resistance levels, can further enhance the reliability of your trading decision.

Final Thoughts

The Bullish Harami candlestick pattern is a useful tool in Forex trading that can signal a potential reversal from a downtrend to an uptrend. It consists of two candles where a large bearish candle is immediately followed by a smaller bullish candle that is completely contained within its range, evoking the term "harami," or "pregnant," in Japanese. When this pattern appears—especially when confirmed by other technical indicators—it is often seen as a buy signal, suggesting that a new bullish trend may be emerging.