Bearish Belt Hold

The bearish belt hold is a one-bar bearish reversal Japanese candlestick pattern that suggests near-term bullish volatility according to an extensive backtest.

Traditional traders might be surprised to learn that they’re likely losing money using typical candlestick charting methods.

But what if I told you that you could turn this unprofitable pattern into a profitable trading strategy by doing the opposite of what conventional technical analysis teaches?

Would you be interested?

If so, keep reading if you want to learn how to get all the gains and trade the bearish belt hold pattern like a data-driven candlestick samurai.

What Is a Bearish Belt Hold Candlestick Pattern

Bearish Belt Hold Candlestick Pattern Illustration © Analyzing Alpha
Bearish Belt Hold Candlestick Pattern Illustration

The bearish belt hold pattern occurs frequently, and traditional investment advice states that it’s a reversal pattern that reverses the current trend.

Unfortunately, for the uninformed trader, the data doesn’t agree.

But before we learn how to trade the bearish belt hold, let’s understand how to identify it on our candlestick charts.

How to Identify the Bearish Belt Hold Candlestick Pattern

Bearish Belt Hold Candlestick Pattern on the Apple (AAPL) July 27th, 2021 daily chart
Bearish Belt Hold Candlestick Pattern on the Apple (AAPL) July 27th, 2021 daily chart

The following are the requirements for a valid bearish belt hold pattern:

  • The candlestick must be bearish with a long real body.
  • There must be little to no upper shadow.
  • The pattern must occur during an uptrend.

Additionally, the pattern often has a lower shadow that can be “held” or pulled in the direction against the trend, much like a belt holds up a pair of pants.

We see the bearish belt hold single candlestick pattern during the daily trading session for Apple on July 27th, 2021.

The prevailing trend is bullish, with prices above the fifty-day simple moving average. Then we see a large bearish candle with almost no upper wick and a little lower shadow.

Now that we know how to identify this bearish reversal candlestick pattern let’s discuss the best trading strategies.

How to Trade the Bearish Belt Hold Candlestick Pattern

The data shows that traders should do the opposite of conventional wisdom and trade the pattern using a bullish continuation strategy expecting a continuation of the existing trend with an optimal risk-reward ratio of 1:5.

But before we do that, let’s learn how most traders traditionally trade the potential top reversal pattern and know what we really should be doing when we get the belt hold signal.

Bearish Belt Hold Bearish Reversal Trade Setup

Bearish Belt Hold Bearish Reversal Trade Setup on the Alphabet (GOOG) December 28th, 2021 daily chart
Bearish Belt Hold Bearish Reversal Trade Setup on the Alphabet (GOOG) December 28th, 2021 daily chart

We can see the bearish belt hold pattern on the Google (GOOG) daily chart on December 28th, 2021. Price is considered to be in an upward trend as it’s above the fifty-day moving average. And we know the bearish belt hold consists of a single candle long bearish candle with no or a tiny upper wick – in other words, where the opening price and the high are very similar.

How do traditional traders trade this belt hold bar with the pattern identified? 

Most traders enter short at a break of the low with a stop loss above the candle’s high.

Using the Google example above, the entry occurred on the next session’s candlestick on December 29th, 2021. This entry point would have turned into a nice profit for anyone who followed the above price action rules, but is what you should expect?

Absolutely not. 

Let’s learn the data-driven way to trade these chart patterns with that in mind.

Bearish Belt Hold Bullish Continuation Trade Setup

Bearish Belt Hold Bullish Continuation Trade Setup on the Tesla Motors (TSLA) November 9th, 2021 daily chart
Bearish Belt Hold Bullish Continuation Trade Setup on the Tesla Motors (TSLA) November 9th, 2021 daily chart

We can see the optimal, data-driven way to trade the bearish belt hold on the Tesla (TSLA) daily chart on November 9th, 2021. 

We see the security’s price is in an uptrend as it’s above the fifty-day moving average. Then we see a large bearish candlestick with almost no upper shadow. With the pattern identified, how do we trade this trend reversal?

The key is that it’s not a trend reversal at all. It’s more likely to act as a potential bottom reversal pattern and continue in the direction of the prior trend.

In the case of Tesla, a data-driven trader would enter long at the break of the belt hold candle’s close with a stop loss below the low. This entry occurred on November 10th, 2021, at $1,023.50, with a stop loss slightly below $1011.52, resulting in a profitable trade.

But with profit in mind, how profitable has this trading strategy been with history as our guide?

Does the Bearish Belt Hold Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the bearish belt hold candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Multiple candlestick patterns are often confused with the bearish belt hold. It’s essential to understand the differences when using candlestick pattern technical analysis.

Bullish Belt Hold vs. Bearish Belt Hold Candlestick Pattern

Bullish Belt Hold Candlestick Pattern Illustration © Analyzing Alpha
Bullish Belt Hold Candlestick Pattern Illustration

The bullish belt hold pattern and bearish belt hold are almost identical. The bullish belt hold anticipates a bullish reversal, whereas a bearish belt hold is supposedly a bearish reversal signal.

I say supposedly because we now know that these patterns don’t work as advertised.

The bullish belt hold has little or no upper wick, whereas a bearish belt hold has no or almost no upper shadow.

Bearish Closing Marubozu vs. Bearish Belt Hold Candlestick Pattern

Bearish Closing Marubozu Candlestick Pattern Illustration © Analyzing Alpha
Bearish Closing Marubozu Candlestick Pattern Illustration

A bearish closing marubozu and bearish belt hold are very similar bearish candlesticks. The difference is where the wick or shadows occur.

The bearish closing marubozu pattern opens near the high, often with an upper shadow, and closes near the low with little or no wick. The bearish belt hold is the opposite from a wick perspective, as it opens near the high with little or no wick and closes near the low, often with a smaller wick.

The Bottom Line

The bearish belt hold does not work as intended. Those who trade this pattern traditionally as a reversal are on the wrong side of history. The bearish belt hold pattern often predicts future share prices will be higher.

Get on the right side of history and learn the best Japanese candlestick patterns.

Leave a Comment