What is a Bullish Harami?

A bullish harami is a term for a certain configuration on a candlestick stock chart indicating a possible upward trend for the stock involved. The configuration occurs when the stock's movement 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 entirely within the body of the black candlestick. This indicates a large downward trend on one day followed by a smaller upturn the following day. When an investor sees a bullish harami, it is a strong indication that the stock is headed for an upward surge.

Candlestick charts are a way to predict the movement of stocks as determined by investor tendencies rather that any characteristics of the stocks themselves. Such charts represents a stock's day-to-day movement over a specified time period, with a series of black sticks, which represent a price drop, and white sticks, which means the stock rose that day. The top and bottom of each stick represent the day's opening and closing prices, while the wicks attached at the end represent the highest and lowest prices that the stock reached that day.

When these charts are studied, patterns begin to emerge that give clues to the way that stocks rise and fall according to the strategies of investors. A harami, which is a Japanese word meaning pregnant or, more accurately, body within, is one such pattern. Haramis can occur with candlesticks of all shapes and colors, but a bullish harami has certain characteristics that signal a possible reversal for a downward trending stock.

For the pattern to be a bullish harami, there need to be a few consecutive days of black candlesticks followed by one short white one whose top and bottom are within the body of the previous day's black one. This means that after a period in which the stock was falling consistently, it rose on one day, albeit at a smaller rate than the previous day's decline. The downward trend has been momentarily halted, and investors take note of the sudden upturn.

Even more convincing evidence of a bullish harami comes when the consecutive black and white candles 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 surging stock is that the hopeful investors, or bulls, who boost the stock on the second day, serve notice to those who had been selling the stock, or the bears, that the stock is resurgent. When the price goes up throughout the day, the bears, who fear the trend has reversed, cease selling, giving the bulls even more of an opportunity to drive the price skyward.