Bullish and Bearish Harami Candlestick Patterns in Crypto Trading

Harami Candlestick Pattern Definition

Bullish and bearish harami pattern consisting of two candlesticks, where the second (smaller) one is completely inside the body of the first one. Technical analysis uses various tools and patterns such as the Harami to identify potential pivot points in the market and predict future price movements. In the trading context, this pattern can signal a possible trend reversal. Harami bullish indicates a possible upward trend, while a bearish Harami indicates a potential price decline.

Characteristics of Harami Patterns

The Harami pattern consists of two candlesticks and has the following characteristics:

1. The first candle is long and can be either harami bullish pattern (upward) or bearish (downward) or bear harami. It shows a strong movement in the current trend.
2. The second candle is smaller and its body is completely inside the first candle’s body. This harami candle can be bull harami (bullish) or bear harami (bearish), but the important point is that it does not go beyond the first candle.

Patterns of technical analysis play an important role in predicting price movements, and the Harami pattern is one such pattern that can signal a possible trend reversal.

What is Bullish Harami Candle Pattern?

A Bullish Harami pattern is a candlestick pattern consisting of two candles, where the first is a long bearish (descending) candle and the second is a short bullish (ascending) candle whose body is completely inside the body of the first candle. This pattern appears after a downtrend and can signal a possible reversal to growth, indicating the weakening of sellers and the beginning of the strength of buyers. The second candle must close above the first candle’s open level, confirming a possible bullish trend.

Bullish Harami Example in Crypto

The Harami bull cross in cryptocurrency is a candlestick pattern that appears after a downtrend and can signal a possible reversal to growth. It consists of two candlesticks: the first is a long bearish (descending) candle, and the second is a bullish (ascending) candle that fully enters the body of the first. When a Harami pattern forms on the chart, it can be a signal for traders to buy crypto, especially if the pattern appears after a long downtrend and is confirmed by other indicators.

Let’s imagine that the bitcoin price has been declining for several days, and a long bearish candle appears on the chart, closing at the 95,000 USDT level. The next day, a short bullish candle is formed with a body that closes inside the first candle’s body, for example, at the 95,100 USDT level. This pattern may signal to the trader that the decline has ended and an uptrend has started, which opens a buying opportunity.

How Do You Trade on a Bullish Harami?

To trade on a bullish harami candlestick pattern, follow these steps:

1. Confirm the trend: Make sure the pattern appears after a downtrend.
2. Wait for the second candle to close: The second candle should close inside the first candle and be bullish (upward).
3. Entry: Open a long position (buy) after the close of the second candle, if it closed above the open of the first candle.
4. Stop-Loss: Set a Stop-Loss order below the low of the second candle to limit losses.
5. Target: Exit the trade when price reaches a resistance level or reverses.

What is Bearish Harami Pattern?

The Bearish Harami is a candlestick pattern consisting of two candles: the first is a long bullish (rising) candle and the second is a short bearish (descending) candle whose body is completely inside the body of the first. This pattern occurs after an uptrend and signals a possible reversal to the downside, indicating the weakening of the buyers and the beginning of the sellers’ strength.

Examples of Bearish Harami Cross

Suppose the bitcoin price is 95,000 USDT and the market is in an uptrend. A bearish Harami pattern appears on the chart:

1. The first candle is a long bullish candle closing at the 95,000 USDT level, which continues the uptrend.
2. The second candle is a short bearish candle that closes at the 94,500 USDT level and is completely inside the body of the first candle.

This pattern signals a possible weakening in buying and foreshadows a trend reversal to the downside. After the bearish Harami pattern appears, a trader may consider selling (opening a short position) or setting a stop loss to protect profits if the crypto market starts to move downward.

After the formation of a Harami pattern, a short squeeze in trading can occur when a sudden change in market direction causes traders who have opened short positions to close them, resulting in a strong price increase hastily.

How to Trade on a Bearish Harami?

To trade on a Bearish Harami:

1. Confirm the trend: Make sure the pattern appears after an uptrend.
2. Wait for the second candle to close : The second candle should close inside the first candle and be bearish (downward).
3. Entry: Open a short position (sell) after the second candle closes if it closed below the first.
4. Stop-Loss: Set a stop-loss above the high of the second candle to limit losses.
5. Target: Exit the trade when price reaches a support level or reverses.

How To Identify Bearish or Bullish Harami Cross Candlestick Pattern?

Let’s take a look at each of the patterns:

Bullish Harami Cross:

• Appears after a downtrend.
• The first candle is a long bearish (descending) candle.
• The second candle is short bullish (rising), closing inside the first candle’s body and above its opening.

Bearish Harami Cross:

• Appears after an uptrend.
• The first candle is long bullish (rising).
• The second candle is short bearish (descending) and closes inside the first candle’s body and below its opening.

Thus, the difference between the patterns is in the trend after which they occur and the direction of the second candle.

Using Harami Cross Pattern with Other Technical Indicators

Harami in combination with other technical indicators can increase the accuracy of trading decisions. For example, you can use technical analysis indicators such as RSI to confirm a bullish Harami Cross after a downtrend. For a bearish Harami cross, MACD can be used to confirm a downward reversal by using the MACD line crossing the downward signal line. Support and resistance levels play a key role in analyzing the Harami pattern, as their breakout or rebound can confirm a reversal or trend continuation signal reinforced by this candlestick pattern. In addition, Fibonacci retracement levels often used in conjunction with the Harami pattern to confirm possible reversal points, allowing traders to determine where a change in price direction may occur more accurately.

Benefits and Risks of Trading with the Harami Patterns

Pros of trading with Harami patterns lie in their ability to pinpoint a possible trend reversal, which helps traders to enter the market on time. These patterns are easy to identify and can serve as a reliable signal, especially when using additional indicators such as RSI or MACD to confirm trend direction.

Cons include the possibility of false signals, especially in strong trends or high volatility. Harami patterns may indicate a temporary consolidation rather than a complete reversal, which increases risks. To minimize losses, you should use additional confirmations and take into account the overall market situation.

Conclusion

Despite its simplicity, the Harami pattern can be an effective tool in a trader’s arsenal. However, to achieve consistent success, it is necessary to consider it in the context of the current trend and use additional indicators to reduce risks and improve the accuracy of signals.