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Bullish Harami: A Small Candle With Big Reversal Potential – Backtest And Trading Rules

ByOddmund Groette Candlestick Trading, Trading strategies

Today, we look at the Bullish Harami – a small candle with big reversal potential.

The bullish harami is one of those quieter signals: a two-candle pattern that suggests selling pressure may be weakening and buyers could be preparing to step in.

Does it work? We quantify and backtest it.

Key Takeaways

  • Bullish Harami signals potential short-term reversal
  • Two-candle pattern shows selling pressure weakening
  • Entry requires RSI below fifty filter
  • Mean-reversion filter improves signal reliability
  • Fixed holding period tested across days
  • Moderate win rate with positive expectancy
  • Works best in short-term rebound setups
  • Drawdowns higher than typical trend systems

What Is A Bullish Harami?

One pattern that often appears near the end of a short-term decline is the bullish harami.

It is a two-candle formation where a large bearish candle is followed by a smaller candle contained within the body of the previous one. Visually, it looks like the market suddenly pauses after a selloff.

Here’s an example:

A schematic financial candlestick pattern diagram illustrating a Bullish Harami setup against a white background. A long black bearish candlestick dominates the center, followed by a much smaller white bullish candlestick completely contained within the vertical range of the previous black candle's body, emphasized by a small green upward-pointing arrow underneath.
Technical chart diagram detailing the exact structural alignment and two-candle geometry of a classic Bullish Harami reversal setup.

The theory goes like this:

The bullish harami suggests that sellers, who were previously in control, may be losing strength. Buyers have not yet taken over, but the aggressive downside momentum has slowed.

For traders, this can be an early clue that a reversal, bounce, or consolidation phase may be near.

That’s the theory. Of course, almost no one has backtested the candlestick patterns, but we have. On our website, you can find all 75 candlesticks quantified and backtested with trading rules and code. You find it in our shop.

Bullish Harami Trading Strategy

First, we backtested each Bullish Harami signal for the S&P 500 and held the position for 1-20 days.

However, we have a filter in place (see trading rules below).

These are the results:

A quantitative performance backtest table analyzing a Bullish Harami trading strategy based on a variable holding period from 1 to 20 days. The spreadsheet tracks 4 key algorithmic metrics: "Sell after N-days", total number of trades, average percentage profit or loss, and the calculated profit factor for each systematic setup.
Backtest performance data matrix for the Bullish Harami pattern evaluating historical win rates and profit factors across different holding periods.

If you hold for ten days, you get the following equity curve:

A multi-decade line chart plotting an algorithmic backtest for a Bullish Harami trading strategy from 1993 through 2026. The terminal portfolio equity value reaches 282,665, starting from a 100,000 baseline. The performance curve features a prominent watermark for QuantifiedStrategies.com stretching horizontally across the lower center.
Long-term historical backtest equity curve demonstrating the cumulative return trajectory and multi-decade performance stability of a mechanical Bullish Harami execution model.

Performance

  • No. of trades: 162
  • Average gain per trade: 0.77%
  • Win ratio: 64%
  • Profit factor: 1.5
  • Annual returns (CAGR): 3.2%
  • Exposure/time in the market: 19%
  • Risk-adjusted return: 16% (CAGR divided by time spent in the market (0.19))
  • Max drawdown: 36% (buy and hold 55%)

Trading Rules

We made the following trading rules:

You find the trading rules at the bottom of the article

We use RSI as a filter because we know the stock market’s mean-reversion tendencies. You don’t want to buy when the market is overbought.

Trading Rules

🔒 These trading rules are for members only.

Get access here

I’ve got an Msc from Heriot-Watt University, Edinburgh (1996), in addition a to a business administration degree the Norwegian School of Management (BI – 1994). Did my mandatory military service in between.

After university, I worked two years as an auditor (1996-1998).

I co-founded Aksjeforum.com in 1998/99 - one of the first websites about trading and investing in Norway. It was later acquired by Digi.no in 2001.

I have written 4 books about trading (in Norwegian). One of them has sold 30,000 copies, a record for a financial book in Norway.

From 2001 until 2018 full-time independent prop trader (Series 7 in 2001) and investor.

2018-today: Investor, writer, analyst.

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