What’s a bullish harami?

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A bullish harami is a term for a certain configuration on a stock candlestick chart that indicates a possible upward trend for the stocks involved. The setup occurs when the movement of the stock is represented by a long black candlestick one day followed by a smaller white candlestick the next day, where the body of the white candlestick is completely within the body of the black candlestick. This indicates a large downtrend in one day, followed by a smaller rally the next day. When an investor sees a bullish harami, it is a strong indication that the stock is headed for an upside rally.

Candlestick charts are a way of predicting the movement of stocks as determined by investor trends, rather than any characteristic of the stock itself. Such charts represent the daily movement of a stock over a specific time period, with a series of black bars, representing a price drop, and white bars, meaning the stock went up that day. The top and bottom of each bar represent the opening and closing prices for the day, while the wicks attached to the end represent the highest and lowest prices the stock reached that day.

When these charts are studied, patterns begin to emerge that give clues as to how stocks move up and down based on investor strategies. A harami, which is a Japanese word meaning pregnant or, more accurately, body inside, is one such pattern. Haramis can occur with candlesticks of all shapes and colors, but a bullish harami has certain characteristics that indicate a potential reversal of a downtrending stock.

For the pattern to be a bullish harami, there needs to be a few consecutive days of black candlesticks followed by a short white candlestick whose top and bottom are inside the body of the previous day’s black. This means that after a period in which the stock fell steadily, it went up one day, albeit at a slower rate than the previous day’s fall. The downtrend has stopped momentarily, and investors are taking note of the sudden recovery.

There is even more compelling evidence of bullish harami when consecutive black and white candlesticks are long and the second day’s closing price is closer to the previous day’s opening price. The reason a bullish harami indicates a rising stock is because hopeful investors, or bulls, which drive the stock on the second day, notify those who have been selling the stock, or bears, that the stock is rebounding. When the price rises throughout the day, the bears, fearing that the trend has reversed, stop selling, giving the bulls an even greater opportunity to drive the price skyward.

Smart Asset.

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