Bullish Harami model (Mother cradling baby) is a cluster of 2 reversing candles that are easy to identify. This candlestick pattern gives a moderate strong signal but offers a very good risk / reward ratio when entering the order. This model appears relatively frequently on the forex market at different time frames. So if you know how to use them, you can create effective trading opportunities.
What is the Bullish Harami model?
Bullish Harami (Mother cradling a child) is a basic Japanese candlestick pattern, consisting of 2 candles, the first candle falls long, covering the second rising candle, similar to the image of a mother holding a baby. The pattern usually appears in a downtrend and gives bullish signals.
For price action traders, sometimes they call this model Inside Bar.
In addition, the model that contrasts with the Bullish Harami is the Bearish Harami, which is also considered an error version of the model Dark Cloud Cover.
Features of Bullish Harami
In forex market, Bullish Harami model must have all the following characteristics:
- The current trend must be bearish, because Bullish Harami is a model that predicts the market to move from bearish to bullish.
- The first candle (the mother candle) is a long bearish candle, the second candle (small candle) must be a rising candlestick with a short height, less than 25% of the height of the previous candle. Besides, the more the child is within the range of the parent candle, the stronger the pattern. In addition, if the second day opens above the first day's close, meaning that a gap exists, the better for the pattern.
- The smaller the beard and the body of a small candle, the more effective the Doji candle is, the more effective the pattern.
So you need to remember that Bullish Harami appears at the end of the downtrend, with 2 candles, the first candle is down, the second is bullish but the height is short. Bullish Harami indicates that the market has started struggling and is likely to end a downtrend. This pattern is not as strong as typical reversal candles like Bullish Engulfing, but the reliability of Bullish Harami is also moderate.
Psychological development of Bullish Harami model
The Japanese believe that when the downtrend has lasted for some time, the market will become more careful and cautious before going down.
In the Bullish Harami pattern, the first candle with a very long body shows a strong decline. However, in the next session, the market struggled when the price went within a narrow range. The seller is temporarily no longer overwhelming the buyer as before, caution has appeared.
However, it is necessary to observe further developments to determine whether the price has reversed or is only a temporary pause before continuing the trend.
Actual example of Bullish Harami model
Here is an example of Bullish Harami in practice. On this chart, we can see that the market is initially declining at a quite steep slope. After that, GBPUSD went sideways for about 20 sessions before continuing to break down another beat with 2 very long red candles.
It seems that the British pound will be dumped after that development. But no, in the next session, the price created a green candle with a small body, contained in the previous candle. Bullish Harami pattern is created, the downtrend ends and the market reverses to bullish.
Guide to trading with Bullish Harami model
Entry point command
As mentioned before, the signal of Bullish Harami model is only moderate. Therefore, to increase the probability of winning, you need to incorporate some other factors, such as using the RSI indicator to see if the market is oversold.
If there is a support factor, the entry point to the buy order will be above the second beard about 1-2 pips. Why? Because the signal is not too strong, we need the market to go up to confirm the trend. If you rush to place an order as soon as the candle closes, you will probably be "betrayed" in a timely manner if the price refuses to reverse and continues to drop again.
Stop loss
In the illustration above, the Bullish Harami pattern appeared when the market entered the oversold area. This is a signal to allow buy orders. Stop loss should be placed below the newly created bottom. The advantage here is that our stop loss level is quite short, so to avoid the market from being jammed in the short term, you can set the stop loss a few pips from the bottom, as the example illustrated above.
Take profit with Bullish Harami model
As Bullish Harami appears at the beginning of an uptrend, profit taking is likely to be set quite far. To be on the safe side, you should divide your profit taking into two parts and place them on previous resistance levels, or peaks.
Epilogue
Above are the identifying characteristics as well as trading tactics with the Bullish Harami candlestick pattern. In fact, Bullish Harami is a reversal candlestick pattern for medium signals. Therefore, you should combine with other types of indicators to bring better results. Good luck!
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Author: Tin Nguyen
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