Know everything about Bearish Belt Hold Candlestick Pattern here. Find its meaning, analysis of this pattern, how & when this pattern forms in the chart & how to trade using this pattern.
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About Bearish Belt Hold Candlestick Pattern
The bearish belt hold is a type of candlestick pattern used by the traders while analyzing the charts. A bearish belt hold is formed with the help of two candles, usually during an upward trend.
The following features represent a bearish belt hold:
The first candle, in this case, should be bullish. Therefore, it should be a part of the upward trend.
The second candle, in this case, should be bearish. In this, the opening price of the candle is the highest traded price during that day for that security.
This opening price is higher than the close of the previous day. Since the opening price is the highest traded price, there is generally no upper wick.
The closing price of the stock is very close to the closing price of the previous close. The lower wick is either very short or does not exist in this candle.
Note: Though the second candle in the bearish belt hold represents a change in trend, it should not be taken as a clear indication of a downward trend.
This is because such candles are formed frequently during a trend.
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Analysis of the Bearish Belt Hold Candlestick Chart
Candlestick is simply the visual representation of a security’s price throughout the day or defined period in the form of a chart.
Therefore, analysing the candlesticks can help a trader in analysing the market conditions for that security as well.
However, one cannot rely only on charts for analysing the market conditions. This is because technical analysis is just a part of the market and not the only parameter for analysis.
The market conditions are affected due to various reasons which make it difficult to predict the market conditions completely.
However, if you keep on analysing the market conditions using the charts and patterns, you get to learn a lot.
Let us now try to analyse the conditions under which a bearish belt hold is formed and what might happen next.
Formation of the Bearish Belt Hold Candlestick Pattern
Most traders in India generally trade with a bullish mindset, and they expect the price of a security to go up with time.
Keeping this mindset, traders generally develop a buying trend which leads to domination by the buyers in the market.
Due to this, the first candle in the bearish belt hold is formed as the sentiment of the market becomes positive.
However, when the price increases a lot, the trader becomes anxious. This fear of losing money if the price falls changes the mindset of the traders.
When the trader’s mindset changes, they start selling the security in bulk. Due to this, the second candle of the pattern is formed.
The open price of the candle becomes high for that day as the traders start selling, which indicates that the sellers have started dominating the market.
As a result, the security closes at the previous day close with a low to no wick. Since the seller is now dominating the market, there are some chances of a trend reversal as well i.e. the trend might become bearish.
How to trade using Bearish Belt Hold Pattern?
If you are new in the market, always remember that a bearish belt hold is not a clear indication of a trend reversal. This is a common mistake committed by most traders.
When a new trader observes this pattern, he or she would generally go short on a stock thinking that the prices are going to fall. However, one must remember that in the market, not everything is black and white.
Therefore, it is always recommended not to trade just one the basis of a pattern and always back test the strategy you are planning to implement while trading.
Though there are no fixed strategies that are full proof, we are here to suggest some pointers to keep in mind while trading in a bearish belt hold pattern.
Understand the market sentiment:
This is probably the most important trading advice one must always keep in mind.
It is because a market is as good as the traders who are trading in the market; a market simply cannot function without the traders and investors.
When we hear the term market sentiment, it refers to the sentiments of the majority of traders in the market.
So if the market sentiments are strongly bullish, the pattern observed in this case might fail. However, one should also not trade solely based on market sentiments.
To overcome this problem, there is software which creates multiple ratios that can help in analysing the market sentiments.
These ratios can be of the stocks that are rising to the stocks that are falling so that you get a general idea of the market sentiment.
Once you can understand the sentiments, you can make a trade and choose an entry point after keeping all factors in mind.
The Period of a Trend
Always remember, five candles on a 1-minute chart do not form a trend. The bearish belt hold is a pattern that is generally formed after an upward trend.
Therefore, analysing the upward trend becomes a necessity in this case. There is no fixed period to be considered before calling it a trend, but averages can help.
For instance, you are analysing the chart of ABC, and before analysing the new patterns, you took a look at the old ones.
While doing so, you realized that the previous trends lasted for roughly 25-30 days before showing a reversal or breakout.
This data can help in making some assumptions. Since the previous trend lasted for almost a month, you should try analysing the chart for a month to get a better picture.
Patience is the key
The bearish belt hold is formed when you get to see a red candle after a bull trend. Although this candle has no wick and closes at the previous day’s close, it is not a clear indicator of a trend reversal.
In such situations, the best way to avoid risk is delayed entry. If you don’t want to take a huge risk, do not enter as soon as you see the first red candle.
Delayed entry might not give you the best entry point. However, you can be more confident if you see a few more candles turning red and analyse the upcoming trend in the market.
Analyse the gap size and condition:
In the bearish belt hold, the second candles generally forms after a gap. Looking at the gap size closely can help you to analyse the market conditions.
Well, it is not possible to define what an ideal gap size should be. However, you can get a rough idea using the Average True Range.
Calculating the average true range can be difficult as it requires mathematical operations and techniques.
However, you can look for software that can help you in calculating the Average True Range (ATR).
Use filters to know if a stock is overbought
When the market shows a trend, there are some stocks which are largely affected. These are generally the blue-chip stocks. In simple words, during an upward trend, there are a few overbought stocks.
On the other hand, during a downward trend, there are a few stocks that are oversold. To know if a stock is overbought or oversold, one must use the RSI indicator.
RSI is one of the best technical indicators that shows the results on a 0-100 scale. For calculating RSI indicators, you might have to do a bit of research and learn the procedure.
Generally, an RSI greater than 70 indicates that a stock is highly overbought and the prices may fall anytime.
On the other hand, an RSI lesser than 30 indicates that the security is oversold and one must go long on that.
Conclusion: Bearish Belt Hold Candlestick Pattern
We will now try to conclude the above article by making a note of all the important points:
A bearish belt hold is formed after an upward trend. In this, a red candle which opens at day high and closes at previous day close is formed. This candle generally has no upper wick as the open price is the high price only.
Bearish Belt hold indicates a pattern. However, trading cannot be done and should not be done based on a single pattern.
Whenever you see a bearish belt hold pattern, you must always wait for a few more candles to form and only enter a trade when you are confident.
Trading strategies are never full-proof. In the case of a bearish belt hold, one cannot judge the change of trend on the basis of just one candle.
Doing so can lead to unnecessary risks. However, if you want to enter a trade with a strategy in mind, you must backtest it once.
Backtesting your strategies is one of the best ways to know if your strategy is going to perform in the live market.
The blue-chip stocks follow the market, and they are the ones affected the most. Always keep an eye on such stocks to know if they are overbought or oversold.
Whatever the scenario is, make sure you are ready with trade than can make you money.
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