Last Updated on 21 September, 2020 by Samuelsson

Being a rare candlestick pattern which doesn’t form that often, the bullish mat hold might have escaped the attention of most traders.

A bullish mat hold is a five candle candlestick pattern that forms in an ongoing uptrend, and signals that the trend will continue to be bullish. The first candle of the bullish mat hold is tall and positive and is followed by three small, negative candles. The last candle is big and bullish, and closes above the high of the pattern.

In this guide to the bullish mat hold candlestick pattern, you’ll learn how to identify a bullish mat hold, its meaning, and how to improve its accuracy for live trading.

Let’s start!

Bullish Mat Hold Definition

Bullish Mat Hold

Bullish Mat Hold

The bullish mat hold consists of five candles, where the first and last candles are tall and bullish, while the three candles in between are small and bearish.

Here are the exact conditions that have to be met for a bullish mat hold to form:

  1. The first candle is tall and positive, and forms in a bullish trend
  2. The three following candles are bearish, and all close lower than the previous bar.
  3. The last candle is tall and bullish and manages to close above the high of the pattern.

The traditional interpretation is that a bullish mat hold is followed by a continuation of the bullish trend.

Bullish Mat Hold Vs  Rising Three Methods

If you are familiar with the rising three methods candlestick pattern, you might be a bit confused by now. As a matter of fact, these two patterns are very similar, but there is one major difference.

While the three middle candles of the rising three methods pattern need to be confined within the range of the first bullish candle, that’s not the case with the bullish mat hold. There the three bearish candles may very well be formed outside the first candle’s range.

Below you see the two patterns and how they’re different from one another.

Rising Three Methods

Rising Three Methods

Bullish Mat Hold

Bullish Mat Hold

Bullish Mat Hold Meaning

All candlestick patterns tell us a unique story about the state of the market in which they formed. And as traders, we are very interested in understanding what really goes on in the market, to have a clue about where it might be headed next.

Now, it might be impossible or close to impossible to know why a market performed certain moves as it did. However, analyzing market action always is good practice for any trader. It’s a perfect way to get a better understanding of the market since you will start to note recurring patterns that might eventually be turned into trading strategies.

In fact, this is how we work a lot ourselves. We often turn to visual charts to get new trading ideas, which is something we talk about more in our guide to building a trading strategy

What does the Bullish Mat Hold Tell Us About the Market? 

Let’s now dissect the bullish mat hold, and see what it might be telling us!

As the current market trend is positive,  most traders and investors believe that prices are going to continue ascending. Following this belief, the market forms the first positive candle of the bullish mat hold.

However, having gone up for quite some time, the market is becoming overbought. Similarly, more and more market participants start to worry that a correction may be nearing, given the strong developments of the last period.

As a result, more market participants try to get out of their positions, which leads to a flow of sell orders hitting the market. This leads to the forming of the following three bearish candles.

Now, despite there having been a pullback, as a matter of fact, it didn’t become too serious. This injects new life into the bullish sentiment, which takes its chance to eject the market higher, forming the last, bullish candle.

To conclude, the bullish mat hold is a story about an advancing market that performed a plain, ordinary pullback, before it went on to new heights.

Bullish Mat Hold Example

Here follows a real-world example of the bullish mat hold pattern:

Bullish Mat Hold Example

Bullish Mat Hold Example

How to Trade the Bullish Mat Hold Pattern

Many of those who are introduced to candlestick patterns of different kinds believe that you just have to enter the market once you spot one, to become a profitable trader.

However, things aren’t this easy. Candlestick patterns like the bullish mat hold seldom are profitable enough to be used without further modification. You’ll have to add your own conditions and filters to ensure that you only enter the market at times when there is a true edge.

Now, in this part of the guide, you’re going to learn two powerful types of filters that we use a lot ourselves, simply because we’ve had great experiences with them.

Just remember that it’s crucial to apply any pattern or strategy to the right market where it works. This is best determined with backtesting.

Having said this, let’s have a look at the filters!

Volatility

If you were left with only one type of filter for your trading, volatility filters would be a strong contender on the list!

Volatility is inherent in anything that moves, which means that it’s very much a universal concept that can be applied to most markets!

Now, sometimes a pattern or strategy may work better with high or low volatility, and what works best in your particular market and timeframe, once again is best determined with backtesting.  However, when it comes to the types of volatility conditions we have used in the past, these are some of our absolute favorites:

1. ADX

ADX is a trading indicator that measures the volatility in a market. Readings above 25 are considered a sign of high volatility, while readings below 20 signal that the market is rather calm.

Typically, ADX is used with a 14-period setting, but we’ve found that it often works as well with settings ranging from 5-30.

As to the conditions themselves, you may only take a trade if the ADX is above 25, or below 20, depending on whether your pattern works better with high or low volatility.

Our complete guide to ADX delves deeper into how you should use the indicator.

2. Average True Range

Sometimes a good way to get a sense of the current level of volatility is to compare the ranges of the current bar to the average range of previous bars.

The average true range indicator is perfect for this, considering that it simply is an average of the x-last bar ranges. To see if volatility is high or low, you just have to compare the range of the current bar to the average true range reading.

Seasonality

In the markets, you’ll find that there are many time-based and seasonal tendencies that have quite an impact on the behavior of a market.  For example, there are certain months that are more bullish than others, and the other way around.

If you know these tendencies you could time your entries better. For example, if you spot a bullish mat hold during a period of the month when the market tends to turn more bullish, you may be more inclined to take that trade. As a matter of fact, the seasonal tendencies of the market will be in your favor!

Now, there are many more time-based or seasonal tendencies just waiting to be discovered. Here are some of our favorite places to look!

  1. Time of Day- Some patterns or strategies may only work during the first or second half of the trading session
  2. Day of week – Some weekdays may be more bullish or bearish than others
  3. Day of month- We like to divide the month into two or three pieces, and see if our strategy or pattern fares better on any of them!

Bullish Mat Hold Trading Strategies

Having covered two ways you can improve the bullish mat hold, we now wanted to have a quick look at two trading strategies that use the pattern.

Remember that the strategies listed are examples only, and not meant for live trading. However, they perfectly showcase the things we would try when building trading strategies ourselves!

Trading Strategy 1: Bullish Mat Hold and Moving Average

Moving averages are great tools when it comes to deciding the direction of the trend. Generally, we assume that a market is in a positive trend when it’s above its moving average. Some also demand that the moving average itself must be rising.

Now, if the market as a whole is in an uptrend, the chances are much greater than a bullish mat hold will play out well.

So, in this strategy, our rules to enter a trade become:

  1. The 20-period moving average is rising
  2. The close is above the 20-period moving average
  3. We have a bullish mat hold.

Then we exit the trade after 5 bars.

Bullish Mat Hold Trading Strategy

Bullish Mat Hold Trading Strategy

Trading Strategy 2: Bullish Mat Hold and Range Filter

As the bullish mat hold consists of bullish and bearish candles, we might want to look at the size differences between the two, to get a sense of how bullish the market is.

If the bullish candles are substantially bigger than the bearish ones, we could say that the market is more bullish.

As such, we’ll require that the bullish candles are at least three times the size of the bearish candles.

So, we’ll go long if:

  1. We have a bullish mat hold
  2. The tallest bullish candle is three times the size of the tallest bearish candle.

Then we exit the trade after 5 bars.

Bullish Mat Hold Trading Strategy

Bullish Mat Hold Trading Strategy

Ending Words

In this guide to the bullish mat hold pattern, we’ve covered things like its meaning, definition, and ways to improve the pattern for live trading.

Before ending, we just wanted to urge you to do what most people forget, which is to validate your strategies and patterns before you trade them live. Unfortunately, most strategies and technical analysis doesn’t work, which is why it’s so important that you learn how to validate the strategies you want to trade.

If you’re interested in knowing more about profitable trading, feel free to  have a look at some of our guides below:

Algorithmic trading guide

Swing trading guide

Guide to backtesting

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