Bearish Belt Hold Candlestick Pattern
The Bearish Belt Hold candlestick pattern is a bearish reversal candlestick pattern that can form anywhere in an uptrend or a downtrend; but analyzing where it develops is key. A Bearish Belt Hold candlestick pattern is easily identified due to its lack of an upper shadow.
When a Bearish Belt Hold develops, it means that sellers have had control of the share price for the entire trading session as the share price never pushed higher than the opening share price.
When trading opens, what typically happens is the share price only pushes lower and that’s why there is no upper shadow for a Bearish Belt Hold candlestick pattern. The sellers have been in control for the entire trading session.
Requirements
Listed below are the requirements for a Bearish Belt Hold candlestick pattern.
- It has a shaven top, meaning it has no upper shadow; if it does have an upper shadow, it must be very minuscule in nature
- The share price should close at or near the lows of the trading session
- Most Bearish Belt Hold candlesticks have red colored real bodies, however in certain instances it can also have a green colored real body
Characteristics & Observations
These are some of the characteristics and observations I have made with Bearish Belt Hold candlestick patterns.[s2If !current_user_can(access_s2member_level1)]…..
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- I have observed that the larger the real body is for the Bearish Belt Hold candlestick, the greater the chances are that the uptrend just turned into a downtrend
- When there is a lot of selling volume associated with the Bearish Belt Hold candlestick, the candlestick’s resistance area tends to be very strong
- The first of three candlesticks in a 3 Black Crows candlestick pattern tends to be a Bearish Belt Hold candlestick pattern
- It is typically a bearish reversal candlestick pattern, but it can also that can be either a bearish reversal candlestick pattern or part of a bearish continuation candlestick pattern
Bullish Counter-Part
The bullish counter-part to the Bearish Belt Hold candlestick pattern is the Bullish Belt Hold candlestick pattern.
The main differences between a Bearish Beltand a Bullish Belt Hold candlestick is that a Bearish Belt Hold does not have an upper shadow while a Bullish Belt Hold does not have a lower shadow.
Another difference to watch for is where they develop within a stock’s trend. Look for a Bearish Belt Hold at the top of an uptrend and look for a Bullish Belt Hold at the bottom of a downtrend.
Resistance Area
A close above the resistance area for a Bearish Belt Hold candlestick pattern nullifies the candlestick’s resistance. Bearish Belt Hold candlestick patterns that have large real bodies in comparison to surrounding candlesticks tend to have stiffer support areas than ones with smaller real bodies.
When the selling volume associated with a Bearish Belt Hold candlestick pattern is significantly greater (like 50% to 100% or more) than the previous candlestick’s volume, it means that the stock has reached the end of larger trend and is most likely entering into a consolidation period.
A close above the resistance area for a Bearish Belt Hold candlestick pattern nullifies the candlestick’s resistance. When the Bearish Belt Hold candlestick pattern develops on heavier than normal selling volume, do not anticipate a break above the resistance area on the 1st re-test. The 2nd re-test of the resistance area can be suspect at times too. As they say though, the 3rd time is usually the charm.
Trading Strategies
I will review 2 different trading strategies for this bearish reversal candlestick pattern. The first strategy will review scaling-out of a position that you hold when the candlestick pattern develops. The second and more aggressive strategy will involve entering into a short sale position based on further anticipated declines in the share price.
Always be sure to step back and analyze the “trend of one larger degree“. This can help you determine if the pullback is going to be shorter-term in nature or if it is the start of something extremely more bearish in nature.
If You Are Currently Long the Stock
You may have noticed other sell signals flashing before the development of the Bearish Belt Hold candlestick pattern. If you did and already scaled out of a few shares, congratulations. If that is not the case and you are still holding all your shares, you will want to begin a scale-out process. Use the very first re-test of the resistance area as an opportunity to make a scale-out sale.
If the re-test of the resistance area fails, as it usually does on the first re-test, another scale-out sale could be made. That would leave you with about 1/3 of your holdings left. I prefer to use a 3 step scale-out process. If you want to be sure to lock in gains at higher prices, you can be more aggressive and use a 2 step scale-out process. You can determine what you want to do with the last 1/3.
One thing to keep in mind is the scale of the chart where you see the Bearish Belt Hold candlestick. Is it a daily chart? Is it a monthly chart? The scale of the chart will help to determine the speed in which your selling actions need to take place. For example, if you notice a Bearish Belt Hold candlestick pattern develop on a monthly candlestick chart, you probably have between the next 1-3 weeks to execute the scale-out process and try to maximize your gains before the larger drop comes. When a Bearish Belt Hold candlestick pattern develops on a daily candlestick chart, you may have 1-3 days to execute the scale out process.
It is very important to keep everything in perspective based the scale of the chart you are analyzing. Also use other technical analysis methods for confirmation rather than relying on the candlestick pattern by itself. These other method can help to provide additional areas that can be used as scale-out areas once the downtrend is confirmed.
If You Are Looking to Short the Stock
Wait for the very 1st re-test of the resistance area from the Bearish Belt Hold candlestick pattern. Once the price fails to close above the resistance area and is heading downwards again on selling volume and momentum that is increasing, that is the signal to take a short position.
Ensure the selling volume and selling momentum are both increasing. A MACD Histogram is a great tool to use when monitoring buying and selling momentum. Make sure there is an increase in the selling momentum after the development of the Bearish Harami candlestick pattern. Any slow down in selling momentum is an early indicator to start analyzing the charts and thinking about locking in short sale profits. This is simply done by purchasing shares to cover the shares sold short.
Since prices tend to move down quicker than they move up, short selling can be a very profitable trading strategy. However, it does carry the additional risk of “unlimited losses” when compared to going long on a stock. You need to know when to lock in losses in order to be a successful short seller. If you have a hard time selling anything for a loss, don’t use short-selling as a strategy. If you are not quick to pull the trigger on a loss, that loss can start leading to exponentially larger losses.
In order to minimize risk on a short position, only enter into a short sale trade after capitulating buying volume takes place. Look for a Climax Top volume spike. A capitulating volume spike helps to confirm the bearishness of a Bearish Belt Hold candlestick pattern.
Stop-Loss on Short Sale
To try and further minimize risk, a stop-loss order should be used on all short trading strategies. For a Bearish Belt Hold candlestick pattern, place the stop-loss order in 1 of 2 places:
- at the resistance area from the pattern as described above
- place a tighter stop-loss just slightly above a 61.8% retracement of the Bearish Belt Hold candlestick itself
After forming the 2nd candlestick in the Bearish Belt Hold candlestick pattern, any meaningful downtrend should probably start within the next candlestick or two. Look for the selling volume to start increasing along with an increase in selling momentum as indicated by the MACD Histogram chart tool.
Almost all 3 Black Crows candlestick pattern begin the pattern with a Bearish Belt Hold candlestick pattern. But not all Bearish Belt Hold candlestick patterns lead to 3 Black Crows candlestick patterns. Be on alert when a Bearish Belt Hold candlestick does develop. It can lead to a quick decline in price.
Real Chart Examples
This is a 5 year monthly candlestick chart for Apple (AAPL) that illustrates a Bearish Belt Hold candlestick pattern. This pattern represents not only a Bearish Belt Hold candlestick, but also a Bearish Engulfing candlestick pattern. A double whammy when it comes to bearish reversal signals. But the stealthy thing about Apple’s Bearish Belt Hold candlestick – it developed on selling volume that was rather light in nature.
Analyzing the Bearish Belt Hold Candlestick Pattern that Signaled a Top on Apple’s Monthly Chart
Seeing a pattern like this develop on heavy selling volume should get you thinking about selling some shares on any rebound in the share price in the next trading period. The price and volume action leading up to the potential re-test of the overhead resistance area will provide clues regarding a breakout or failure.
For example, if buying volume starts slowing down as Apple is reaching the overhead resistance area, the chances decrease for a successful breakout. Statistically, it is best to sell shares and lock in any remaining gains on the first re-test of an overhead resistance area. There is a good chance that you will be able to repurchase those sold shares at lower prices.
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