Bullish Belt Hold is one of the single candlestick patterns that will indicate a potential downward reversal. This time we will discuss how to recognize and also the strategy of trading using the bullish belt hold. You can also read other articles such as Learning the Types of Bullish Continuation Patterns and How to Read Them.

What is Bullish Belt Hold

Bullish Belt Hold Also known as Yorikiri in Japanese, this pattern is defined as a single bar Japanese candlestick pattern, indicating a potential reversal of the prevailing downtrend. In this candlestick pattern, the trading day opens at a low, but as the day progresses, the stock begins to move higher, eventually closing near the high. That said, it is not necessary that the trading day will close at the high. The Bullish Belt Hold candle appears similar to the opening of a white Marubozu. The candlestick pattern is such that it opens at the low of the period and then rallies to close near the high, leaving a small upper shadow and no lower shadow. This pattern reappears in a downtrend, following a stretch of bearish candlesticks. Also, the opening price of the candle is much lower than the low of the previous day. This pattern is named “belt hold” because it closes well into the body of the previous candle and keeps the price from falling further.

How to Recognize the Bullish Belt Hold Pattern

Bullish Belt Hold is a one-line pattern formed by the Opening White Marubozu base candle. There are no sources, which would give information about how short the upper shadow should be. We also find out that it should not be more than 25 percent of the candle. The pattern should occur in a downtrend. It rarely changes the trend on the next candle. The pattern slows it down somewhat, and the turning point occurs on the next nearest candle. However, it is not a rule. Like all one-line patterns, it is worth waiting for several candles for signal confirmation. The Bullish Belt Hold pattern can occur in combination with other patterns. For example, it can be the second line (The Opening White Marubozu appears as a long line) of such patterns as the Bullish Engulfing, Piercing and Three Inside Up patterns. In this case, the more important are the patterns consisting of many lines. When the Bullish Belt Hold pattern is formed by a very long candle (three times longer than the average length of the last n candles), it can create a very strong support zone.


 There are three defining characteristics of the Bullish Belt Hold Candlestick Pattern. They are as below:

  1. This pattern usually signals a shift or shift in investor opinion, from bearish to bullish.
  2. Because this pattern occurs frequently, it shows mixed results in terms of predicting future stock prices.
  3. Potential candles are boosted if they form around support levels, which include Moving Averages, trend lines, or market pivot points.

Tips Trading Bullish Belt Hold

As a trader, you should consider more than two trading days while predicting the trend. Although you can find this pattern on various time frames, you should remember that it is much more reliable on daily and weekly charts. This is due to the fact that the trader plays an integral role in its formation. Just like many other candlestick patterns, avoid using this candlestick pattern in isolation. When trading the market, you can use the Bullish Belt Hold pattern in conjunction with other technical indicators and price patterns as it can drastically increase the chances of a valid signal. For example, if the Bullish Belt Hold candlestick pattern may open lower than the previous swing low and close above the point to form a potential double bottom. This pattern should be seen in a long white or green candle to indicate that the bulls have taken control. The candle before the pattern should be accompanied by above-average volume to signal a climatic selling pattern and a potential reverse reversal. On some occasions, the Bullish Belt Hold candlestick is likely to be a pause in an intermediate downtrend, and traders carefully wait for the price to confirm the pattern. Traders can place a stop-loss order at the midpoint if the Bullish Belt Hold candlestick pattern is long. Although a complete stop is required, the chances of a market disruption are very slim. This pattern should be traded as a bearish continuation expecting the prevailing downtrend to continue with an optimal risk-reward ratio of 1:5. In other words, following the crowd during your trading session is usually a recipe for disaster. But before we dig deeper into how profitable traders handle this pattern, let’s take a look at traditional trading methods.

Strategi Trading 1: Dengan Kondisi Gap

The gap between the first and second candles is one of the key components of this pattern. And therefore, it might be good to pay more attention to it! For example, if the pattern contains a large gap, it means that buying pressure must be greater to close it. And after this, it is likely that the buying pressure in the market is enough to start a new trend! So how big is the gap? Well, one of the better ways to measure the range is to use the Average True Range indicator, which works to smooth out outliers. The Average True Range is basically a moving average of the true range. Now we might require the gap to be greater than the Average True Range in order to buy in the market. Thus, the strategy rule becomes that we buy if:
  1. There is a bullish belt handle
  2. The gap is larger than the actual range average.
Then we exit the trade after 5 bars!

Trading Strategy 2: With Moving Average Distance Filter

Since a bullish bell hold must occur in a downtrend, we may want to have some filters that reflect this. One of the most common ways to determine whether a market is up or down, is with a Moving Average. If the market is below its Moving Average, it is bearish, and vice versa. If we apply a Moving Average to this pattern, we can try to take a trade if the market is below its Moving Average. However, in this example strategy, we will take it one step further. We will require a close below the Moving Average minus the average true range times 5. So the rule for this strategy becomes that we go long if:
  1. There is a bullish belt handle
  2. The market is below the 200-period Moving Average by five times the actual Average range, or more.

Then we exit the market when it closes above the Moving Average.

 

Bullish Belt Hold Bullish Reversal Trade Setup

First, we need to validate and identify the bullish belt hold candle. We can see the candle pattern on the Microsoft (MSFT) daily chart on May 20, 2021. We see that price is below the fifty-day Moving Average, which we use as a trendline to determine an uptrend or downtrend. We identify the belt hold bullish candle pattern with the open near the low of the day with almost no lower shadow and the high above the close. With the bullish belt hold identified, what is the traditional trading strategy? Traders enter a long position on a break of the belt hold candle high, and stop out on a break below the candle low. And while this pattern does produce profits, as it did on the Microsoft daily chart above, there is a better way to trade it.

Advantages of Using Bullish Belt Hold

Explained below are the main advantages of trading the Belt Hold pattern:
  1. It is very easy to integrate the Belt Hold pattern into various trading strategies.
  2. For short-term trading, the Belt Hold pattern provides a reliable way to identify an impending reversal in a price trend.

After learning about Bullish Belt Hold along with the trading strategy, you can apply it to your own trading by following the steps above. Also register to be able to trade at GIC with the benefits of our features!