Bullish/Bearish Belt Hold Pattern in Candlestick Trading


The finer points of candlestick trading can be overlooked by some investors. However, it doesn’t take a banker to tell you the benefits gained from knowing the popular candlestick patterns, such as the belt hold pattern. After quite some time researching all the nuances we’ve compiled a guide to the ins and outs of the belt hold pattern. 

A belt hold pattern can be either bearish or bullish but shows a reversal in either case. It’s a single candle pattern that can be the key into market trends.  

Belt hold patterns can predict bearish or bullish markets and because they’re so common, they might fool an earnest or inexperienced investor. Read on for a deeper understanding of the bearish and bullish belt hold patterns.

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Types of Belt Hold Candlestick Pattern

As mentioned, a belt hold pattern can be bullish or bearish depending on where the wick appears, and the state of the market. 

  • Bearish Belt Hold: This occurs at the height of an uptrend. The bearish belt is a dark, full body candle with little to no wick, but it does have a shadow signifying that, at the end of the day, the prices were pushed down.
  • Bullish Belt Hold: The bullish belt hold is essentially the opposite of a bearish belt. The bullish belt is a light, full bodied candle with a wick but no shadow. This signifies that, at the end of the day, the price has been pushed up. When this pattern appears on a downtrend it can signal an upward reversal. 

How to identify Belt Hold Pattern in Candlestick Trading?

Spotting a belt hold pattern isn’t too difficult once you know what you’re looking for. We’re going to explain exactly what you need to know in the following section that expands on the construction and the key characteristics of the belt hold pattern.

Characteristics and Construction of a Belt Hold Pattern

The Belt hold pattern is comprised of the following visual cues:

  • A Single Candle: Unlike other patterns, the belt hold is made of a single candlestick. It will be either dark (bearish) or light (bullish) depending on where the candle falls on the trading chart.
  • A long shadow or wick: A bullish belt hold has a long wick showing upward mobility. A bearish belt hold has a long shadow meaning a downward trend could be close. The longer the shadow, or wick, the more accurate the signal. A short wick or shadow can safely be overlooked as false positives. 
  • Second Session Confirmation: Confirm the accuracy of the pattern by seeing what follows. If the same belt hold pattern appears twice, then it can signify that the market follows trends. 

How to Interpret Belt Hold Pattern?

Like any candlestick pattern, the signals from the belt hold pattern are not 100% correct without other indicators. Furthermore, it can appear multiple times on any chart, so relying too heavily on this pattern during analysis isn’t ideal. But in the right situation here are a few smart moves:

  • Entry Point: The belt hold is at best a short term strategy but it allows you to discover market reversals to plan a low cost entry point. Remember to combine the belt hold with other indicators to ensure you’re not entering into a long term bearish trade. 
  • Stop-Loss: The bullish belt hold can show you the consistent close average of a security. This allows you to set a more accurate stop-loss just above the average. If the security begins a long-term downward trend that goes against your models then you’ll have an exit with minimized loss. 
  • Short-sell: The belt hold offers the seller the opportunity to make a series of short sells based on pending uptrends. While this may not be a technique the average position trader would employ it can still work to recoup losses from long term investments. And with a bullish belt you may be able to rinse and repeat profit margins.

How to Improve the Reliability of Belt Hold Pattern in Candlestick Trading?

Here are a few good market indicators you’ll want to combine with the belt hold patterns:

  • The McClellan Oscillator: The commonness of the belt hold pattern can be misleading. Combining it with The McClellan Oscillator can give an investor a better insight as to which stocks are on the rise. Use the belt hold after identifying key securities to find the security with the most consistent growth rate. 
  • Market Context: If you’ve heard this one before it’s because it’s so important. The belt hold pattern can appear frequently but with market context you’ll be able to plot when they’re most likely to occur. This can help you discover the overall market trend. 

How to Trade Belt Hold Pattern in Candlestick Trading?

Every candlestick pattern is maximized when paired with a set trading strategy. Once you have the basic understanding of a belt hold pattern you can apply it to position trading. Described below are some important considerations that you should make when position trading using the belt hold pattern. 

Market Environment

A non-divergent market is ideal for this strategy. Because position traders can sit on a security for a number of years it’s important to understand the long term value. Use belt hold patterns to show consistent rate changes over a period of time.

Identify and Confirm Trade Opportunity

Chart the rate of bearish belts to predict when a security is dropping in price. A market savvy investor should be wary not to mix bearish and bullish patterns and to remember not to move on a belt pattern after only one session. 

Determine Trade Entry, Stop Loss and Take Profit Levels

Entering a trade before prices rise is ideal and when using a belt hold within position trading you may only enter into a few trades over months. However, you can also use the bullish belt as a way of getting into a security that shows a continuous upward trend. Meaning while the entry point may not be ideal in the short term the long term value of the security is on such an increase that it’s worth it. Set stop loss at the average market close. The take profit should be set just below the market high. 

Execute and Manage Trade

Position trading and belt hold patterns are best used in trend following markets. Volatile markets can easily disrupt any patterns and make long term investment losses extreme. Remember these points when making trade decisions. 

Monitor Securities Quarterly

Position traders have no use for the day-to-day changes in the market. However, every security needs to be reviewed for any major changes. Monitoring securities on a quarterly scale for bullish beltlines can affirm your market investment. 

Choose securities that follow trends

A smart position trader knows their risk is the long term investment and volatile markets add needless risk. Confirm a security follows trends by how accurate and long the wick or shadow is on a particular belt line. 

Advantages and Limitations of Trading Belt Hold Patterns

For serious investors, it is important to account for various advantages and limitations in trading the belt hold pattern in their trading plans.  

Now that we have covered the basics around identifying the belt hold pattern and making trading decisions leveraging it, let us discuss a few advantages and limitations of trading this pattern.

Advantages of Trading Belt Hold Patterns

Described below are the key advantages of trading the belt hold pattern –

  1. It is easy to integrate the belt hold pattern into a variety of trading strategies
  2. For short term trading, the belt hold pattern provides with a reliable way to identify upcoming reversals in price trends

Limitations of Trading Belt Hold Patterns

Described below are the key limitations of trading the belt hold pattern –

  1. The high frequency with which the belt hold pattern appears on the price chart of a security can result in misleading and cluttered data
  2. The belt hold pattern can be ineffective on long term strategies if not combined with retracements and other indicators

Author’s Recommendations: Top Trading and Investment Resources To Consider

Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.

Conclusion

Belt hold patterns, whether bullish or bearish, can be powerful indicators for a reversing market but they can only work within set strategies and with other indicators, even more so than other candlestick patterns. Remember all investments are risks and information is the difference between profit and loss. For more information on candlestick trading patterns check out our other articles.

BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!

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    Navdeep Singh

    Navdeep has been an avid trader/investor for the last 10 years and loves to share what he has learned about trading and investments here on TradeVeda. When not managing his personal portfolio or writing for TradeVeda, Navdeep loves to go outdoors on long hikes.

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