Identifying the bullish harami

If you want to identify a true bullish harami, the pattern and the market must have the following features:

1 The relevant market or stock is in a downtrend.

1 The setup day has a longer candle than the signal day.

1 The setup day has a black candle, with the open greater than the close, and that candle is fairly long.

1 The signal day's candle has an open lower than its close.

1 The open of the signal day is higher than the close of the setup day.

1 The low of the setup day is lower than the signal day's low, and the high of the setup day is higher than the high of the signal day.

1 The signal day's open is higher than the setup day's close.

1 The signal day's close is lower than the setup day's open.

Figure 7-4 is a picture of two days that create a bullish harami. Note: The high and low of both days don't come into play on this pattern — just the open and close.

Figure 7-4:

A bullish harami pattern.

Figure 7-4:

A bullish harami pattern.

The setup day of the harami is a down day that follows a bearish trend. On the signal day, the open is up from the first day's close, and the bulls rule the day, because the close is higher than the open. Since there has been a downtrend, the bulls may be a bit timid, worried that the bears are going to come back and push to new lows. The confidence the bulls gain when this doesn't occur should translate to more buying, and a reversal of the downtrend that culminated in the bullish harami.

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