A bullish harami is a candlestick chart pattern in which a large candlestick is followed by a smaller candlestick whose body is located within the vertical range of the larger body. The bullish harami is a downtrend or bearish candlestick (red) engulfing a small bullish candlestick (green), giving a sign of a reversal of the downward trend. Since the bullish harami indicates the bearish trend may be reversing, it may be a good time to enter into a long position.
Bullish Harami pattern is considered to be a trend reversal pattern, giving investors the buy signal indicating that the bear run is over and bull is taking over the market.
The size and location of the bullish candlestick formed on Day 2 will tell more about the magnitude of this pattern. The bigger bearish candle of Day1 and a comparably small bullish candle of Day 2 represents strong trend reversal. Similarly if the Bullish candle formed on Day 2 is located near the bottom of the Bearish candlestick formed on Day 1 then one can say the uptrend may be slow, but if it lies in the mid or near the top side of the bearish candle one can say the reversal is moderate to strong.
Formation of Bullish Harmi Pattern
A bullish Harami occurs when there is a large bearish red candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. Again, the most important aspect of the bullish Harami is that prices gapped up on Day 2 and price was held up and unable to move lower back to the bearish close of Day 1.
The trend, any trend for that matter is in force having longer green or red candles. Next day, may be at a support or resistance level or following a news or an event, the price opens with in the range of the real body of the previous candle. Through out the day the price goes up and down. But neither the bulls are strong nor the bears are strong. At the end of the day the price closes with in the open and close range of the previous day.