Bullish Belt Hold

The bullish belt hold is a frequently-occurring one-bar bullish-reversal Japanese candlestick pattern that leads to bearish price action, according to the data.

Traditional candlestick technical analysts lose money in most markets with this pattern.

Not so hot, right?

But what if I told you that this frequently occurring, single-bar pattern can be one of the most profitable candlestick patterns when traded optimally?

Would you be interested?

Keep reading to learn how to trade bullish belt hold patterns in a data-driven, money-making way.

What Is a Bullish Belt Hold Candlestick Pattern?

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

The bullish belt hold is traditionally traded as a bullish reversal pattern. The name allegedly comes from a samurai holding up his pants using the handle of his belt. 

While the veracity of the backstory can be debated, how to trade this pattern in the most profitable way based on history cannot.

But before we learn how to optimize this pattern, let’s understand how to identify this candle and its price action.

How to Identify the Bullish Belt Hold Candlestick Pattern

Bullish Belt Hold Candlestick Pattern on the Apple (AAPL) October 5th, 2021 daily chart
Bullish Belt Hold Candlestick Pattern on the Apple (AAPL) October 5th, 2021 daily chart

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

  • The candlestick must be bullish with a long real body.
  • There must be little to no lower shadow.
  • There must be an upper shadow.
  • The bullish belt hold must occur during a downtrend.

As mentioned above, the pattern has a short upper shadow that can be held.

We saw the potential bottom reversal pattern on Apple’s (AAPL) daily chart on October 5th, 2021. The price action is in a downtrend as it’s below the fifty-day moving average. The opening price is near or at the low of the day, with the closing price significantly above it, giving us a long real body. 

The high is above the closing price, giving us a bullish handle. With the belt hold signal identified, what’s the best trading strategy for these bullish belt hold patterns?

Let’s find out!

How to Trade the Bullish Belt Hold Candlestick Pattern

The bullish belt hold should be traded as a bearish continuation in the crypto and forex markets and using a bullish mean reversion strategy in the stock market, expecting a longer-term move.

In other words, following the crowd during your trading session is typically a recipe for disaster.

But before we dig into how profitable traders handle belt hold trades, let’s look at the traditional trading method.

Bullish Belt Hold Bullish Reversal Trade Setup

Bullish Belt Hold Bullish Reversal Trade Setup on the Microsoft (MSFT) May 5th, 2021 daily chart
Bullish Belt Hold Bullish Reversal Trade Setup on the Microsoft (MSFT) May 5th, 2021 daily chart

First, we need to validate and identify the bullish belt hold candle. We can see the candle pattern on the Microsoft (MSFT) daily chart on May 20th, 2021. 

We see the price below the fifty-day moving average, which we’re using as our trend line to determine an uptrend or downtrend.

We can also identify the rising candle with the open being near the low of the day with almost no lower shadow and the high above the close, giving us the belt hold pattern. 

With the bullish belt hold identified, what’s the traditional trading strategy?

Traders go long at the break of the belt hold candle high and stop out with a break below the candle’s low.

And while this pattern does produce profits in the above Microsoft chart, it’s likely to lose money over time.

So how should you trade this potential top reversal pattern?

Do the opposite of what everyone else is doing.

Bullish Belt Hold Bearish Continuation Trade Setup

Bullish Belt Hold Bearish Continuation Trade Setup on the Bitcoin (BTCUSD) December 25th, 2021 daily chart
Bullish Belt Hold Bearish Continuation Trade Setup on the Bitcoin (BTCUSD) December 25th, 2021 daily chart

Let’s practice identifying this pattern on our candlestick charts once again.

The bullish belt hold pattern occurred on the Bitcoin (BTCUSD) daily chart on December 25th, 2021. Investor sentiment is negative as the price is below the fifty-day moving average.

Perhaps Santa didn’t bring the bulls?

We then see the belt hold single candlestick with small or no shadows and a tiny upper shadow that can act as a belt handle.

With the pattern identified, data-driven traders go short at the break of the belt hold bar close with a stop loss above the high. 

Using the Bitcoin example, a data-driven trader would have gone short the next day. The price retraces but never hits the stop loss, and the bears take over the next few trading days leading to serious satoshis.

And even though the bearish continuation works in all markets, the bullish mean reversion has a slightly higher edge in the stock market.

Bullish Belt Hold Bullish Mean Reversion Trade Setup

Bullish Belt Hold Bullish Mean Reversion Trade Setup on the Tesla (TSLA) March 31st, 2020 daily chart
Bullish Belt Hold Bullish Mean Reversion Trade Setup on the Tesla (TSLA) March 31st, 2020 daily chart

We’ll jump right to the trade setup as we’ve already practiced multiple times on how to identify this single-bar candle pattern.

A bullish mean reversion trade setup waits for the price to move below the pattern low and then rise back above this same low to trigger an entry with a stop loss of one ATR. We also give three days for confirmation.

Let’s make this lucid with an example.

We see the bullish belt hold on the Tesla daily chart above. The next day, the price crossed below $33.13 on March 31st, 2020. We now wait up to three days for the price to rise above the same price. This occurs on April 3rd when mean reversion traders go bullish. Price does move down that day but quickly reverses and moves upward, leading to a profitable trade.

But speaking of profit targets, what can history tell us about this single candlestick pattern?  

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

Using the following rules, I backtested the bullish belt hold patterns 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 bullish belt hold. Knowing the differences when trading these similar patterns on your candlestick charts is essential.

Bearish Belt Hold vs. Bullish Belt Hold

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

The bearish belt hold and the bullish belt hold patterns are mirror opposites. Both are considered reversal patterns, with the bearish belt hold occurring in an uptrend while the bullish belt hold occurs in an uptrend. Also, their wick requirements and price action are reversed.

The bullish belt hold has a short upper wick, while the bearish belt hold has a short lower shadow.

I guess that in a bearish market, the Samari is pulling their pants up, and in a bullish market, the samurai is pulling their pants down. This adds credence to the Warren Buffet quote that you can see who’s been swimming naked when the tide goes out.

Bullish Closing Marubozu vs. Bullish Belt Hold

Bullish Closing Marubozu Candlestick Pattern © Analyzing Alpha
Bullish Closing Marubozu Candlestick Pattern

The bullish closing marubozu candle is another single candlestick pattern. The bullish closing marubozu does not require a trend, but the bullish belt hold does. The only difference in their candlestick configuration is their shadows.

The bullish closing marubozu has no upper wick and a lower shadow, whereas the bullish belt hold has an upper shadow and little to no lower shadow.

The Bottom Line

The bullish belt hold pattern is a frequently occurring single candlestick pattern. The data shows that intelligent traders should go in the opposite direction of conventional wisdom, and brilliant stock traders should use a bullish mean reversion trading strategy.

If you want to learn how to slice through candlesticks like a Japanese samurai, check out the backtest results, where I rank all bullish and bearish candlestick patterns.

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