Last Updated on 21 September, 2020 by Samuelsson

Using candlestick patterns is one of the most popular and common ways to analyze the markets in search of an edge. In this article, you’ll learn about a the bearish belt hold candlestick pattern.

The bearish belt hold is a two candle bearish reversal candlestick pattern that forms in an uptrend. Being a reversal pattern, it signals that the current bullish trend may have come to an end.

In this guide to the bearish belt hold pattern, you’ll learn everything you need to know about the pattern. We’ll cover its definition, meaning, and how it can be improved for live trading.

Let’s begin!

Bearish Belt Hold Definition

Bearish Belt Hold

Bearish Belt Hold

A bearish belt hold consists of two candlesticks, where the first one is bullish, and the second one is bearish. More specifically, here are the conditions that need to be met for a bearish belt hold to form:

  1. The first candle must be bullish and part of a positive trend.
  2. The second candle must gap up and then close at or very near the previous candle’s close.

The general interpretation of the bearish belt hold is that it signals that the trend will turn bearish.

What Does a Bearish Belt Hold Tell Us About the Market?

Since candlestick patterns are representations of market data, they tell us quite a lot about the market and how it moved. And while that’s interesting information, we may also want to know why a market moved as it did!

Now, understanding the reasons behind a market move may be very hard or even impossible. However, if you attempt to analyze market action as we’ll do below, you will eventually gain a better understanding of the market and its mechanism. In addition, the chances are great that you will start to note some recurrent patterns you didn’t notice before, which might even be turned into profitable trading strategies of their own!

So let’s see what might have happened as the market forms a bearish belt hold!

Coming from a bullish market environment, most market participants are positive about the market and its future. As a result, there is more buying pressure than selling pressure, which leads to an ascending market. This is also where the first bullish candle of the bearish belt hold is formed!

The positive market sentiment spills over to the next trading session and makes the market perform a positive gap. Now as the market has gone up quite a bit, investors and traders start to worry that a reversal might be approaching. Following this,  selling pressure increases dramatically and ensures that the market not only covers the gap, but also closes at or very near the close of the previous bar.

The fact that the market took back all the gains made in the positive gap, shows that sellers now dominate the market and might remain in charge to initiate a bearish trend.

Bearish Belt Hold  Examples

Here follows an example of the bearish belt hold candlestick pattern:

Bearish Belt Hold Example

Bearish Belt Hold Example

How to Trade the Bearish Belt Hold Pattern

Many new traders would assume that it’s safe to go short once you spot a bearish belt hold. However, things aren’t that easy.

A bearish belt hold on its own isn’t accurate enough to be used as is. For the pattern to be worthwhile, you need to apply additional conditions that remove some of the false signals, and leaves you with mostly good trades.

Now, what will work best depends a lot on the market and timeframe traded. Apart from what many believe, there aren’t filters and conditions that work exactly the same way on all markets. And in order to find what works best with your market and timeframe, you’ll have to use backtesting.

Still, in the coming section, we’ll share three methods that we’ve had a lot of success with over the years.

Let’s have a look at them!

Market Sentiment Data

Sentiment Indicators

Sentiment Indicators

Most of the filters that we normally think of, only use the data of the security we’re analyzing. However, there are quite many other sources you may use that could bring interesting results.

Now, market sentiment data, or market sentiment indicators as it’s also called, are data streams that are based on broader measures. For example, some market sentiment indicators create a ratio of the number of advancing stocks versus the number of declining stocks, to give a broader image of the general state of the market. And once you have measures like these at your disposal, you may use them to only take trades when the overall market state is favorable for your type of entry.

For example, if you notice that most stocks went up one day, while the security you’re analyzing formed the last candle of the bearish belt hold, that’s a sign of weakness. After all, the stock you’re analyzing fell even though the overall market state was bullish.

The Length of the Trend

Considering that a bearish belt hold should form at the end of a bullish trend, knowing the average length of a trend in your market could be useful.

For instance, if you know that the average trend in your market historically has lasted for 30 bars, and the current trend is 40 bars old, then you should perhaps take a reversal pattern more seriously.

But how do you measure the average length of trends in your market?

It’s very easy! You just roll back the chart, and measure the distance from market peaks to bottoms. Then you get the average of the five last trends, and use that value for reference.

However, be aware that a strong trend may still go on for a long time, even though it passes your average trend length threshold, even by a large margin!

Delay the Entry

In certain scenarios, patterns like the bearish belt hold signal that a reversal is coming, albeit not immediately. You could say that the market action is delayed, in the sense that it occurs some time after the pattern has formed.

In these cases it would be smart of us to delay our entries as well, to take full advantage of the edge!

Now, this also brings another benefit, which is that we may use the price moves after the bearish belt hold as confirmation. That this, we may only choose to take a trade if the signal is followed by a bullish or bearish move, depending on what works best with the market we’re playing with!

Bearish Belt Hold Trading Strategies

Now that you know some powerful techniques to enhance not only the bearish belt hold, but any strategy, we wanted to show you some examples of what a trading strategy using the bearish belt hold could look like.

As with the filters we shared above, you’ll have to do your own research to find out what works best for your market. Again, backtesting is the method we recommend! However, if you wish to see how we would start to experiment when building new trading strategies, we believe that the following section will provide much value!

Trading Strategy 1: Bearish Belt Hold With Gap Condition

One of the key components of the bearish belt hold, is the gap that occurs between the first and the second candle. As such, we may want to focus on the size of the gap, to find trading opportunities that are more profitable than others.

For instance, we may want to only take a trade if the gap is quite big. Doing so would ensure that selling pressure needs to be more significant in order to cover the gap, which in turn could increase the accuracy of the signal.

Now you may ask how you define “big”. Well, we’ll define a big gap as being longer than the average true range(ATR).

As such, the conditions to enter a trade become:

  1. There is a bearish belt hold
  2. The gap between the first and second candle is bigger than than the 5-period ATR.

Then we exit the trade after 5 bars.

Bearish Belt Hold Trading Strategy

Bearish Belt Hold Trading Strategy

Trading Strategy 2: Bearish Belt Hold With Overbought Filter

Some markets like stocks and equities tend to perform exaggerated moves, which are then corrected by a price swing in the opposite direction.

Now, in this strategy, we’ll define when the market has moved too much to the upside by using the RSI indicator. If you don’t know how RSI works, be sure to check out our complete guide to the RSI indicator to learn more about the indicator. 

RSI is one of our favorite trading indicators, and outputs readings between 0 and 100. The traditional interpretation is that readings above 70 signal an overbought market, while readings below 30 signal an oversold market.

As such, we’ll demand an RSI-reading above 70 to take a trade!

We enter a short trade if:

  1. There is a bearish belt hold
  2. The 10-period RSI is above 70

Then we exit once RSI crosses below 50

Bearish Belt Hold Trading Strategy

Bearish Belt Hold Trading Strategy

Ending Words

In this guide to the bearish belt hold candlestick pattern, we’ve covered not only its meaning and definition but also some powerful techniques that you can use to improve the accuracy of the signal.

Before ending this article, we just wanted to give you one last important piece of advice.

Don’t trade strategies or candlesticks that you haven’t tested yourself! The chances are that they don’t work at all, and will cause nothing but losses on your side.

If you want to read more about the steps you need to take to validate a strategy, you really can’t go wrong with any of the following articles:

How to build a trading strategy

The Complete Swing Trading Guide

The complete guide to algorithmic trading 

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