Definition - In this pattern, a small white body will be inside a larger black body. Although it isn't completely accurate, many experts believe that the pattern looks like a pregnant woman after drawing around the outline. Of course, those of you that speak Japanese will know that ‘Harami’ is actually an old Japanese word meaning ‘pregnant’. For the Bullish Harami, the baby will be the small white candlestick whilst the mother is represented by the larger black candlestick.
- On the first day, a black body will form.
- Overall, there has to be a prevailing downtrend.
- After a white body forms on the second day, it will be completely engulfed by the black body seen the previous day.
Patterns and Flexibility
In all, there are two candlesticks that make up the pattern. Although the white body is formed after the first, it becomes engulfed by the black body. Normally, the body tops or bottoms will be at a similar level which makes it easy for the first normal or long black candlestick to engulf the smaller white candlestick.
Behaviour of Trader
When it comes to the Bullish Harami, it generally shows a disparity in the overall health of the market. Reflected in the black body, heavy selling will be seen during a downtrend with a bearish mood. However, short traders are alerted to the fact that the prices open higher on the next day. As a result, many traders choose to cover their positions and this increases the price even more. For latecomers, they short the trend and the rise slows and therefore forms a small white body. Since the body signals a diminishing of the bearish power, this can be used as a signal for a trend reversal.
Buy/Stop Loss Levels
In a Bullish Harami, the confirmation looks at two pieces of data and judges the highest; prices need to cross the higher of either the midpoint of the black body or the last close. Of the two lows, the lowest will be considered the stop loss level. If prices fall and two days of lows are witnessed below the stop loss level after the buy, the stop loss will be triggered assuming that there is no bearish pattern.