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12th Day Chart Pattern / Bullish Counterattack Line Candlestick Pattern

Bullish Counterattack Line Candlestick Pattern

The bullish counterattack line or bullish meeting line is a two candlestick pattern that occurs after a downtrend and is considered a bottom reversal signal. The bullish counterattack line is a less significant bottom reversal signal than the quite similar piercing pattern. The first candlestick is a bearish candlestick. The second candlestick opens far below the close of the first day’s bearish candlestick but then rallies back, closing at roughly the same price as the first day’s candlestick closing price. Therefore, the second day candlestick is a large bullish candlestick. The large gap down on the second day gives bears confidence that the downward trend will continue; but to the surprise of bears, rather than heading further down, prices reverse and fill the gap and close at the same price level of the previous day’s close. The bears gained no ground that day.

Bearish Counterattack Line Candlestick Pattern

In contrast, the bearish counterattack line or bearish meeting line is a two candlestick pattern that occurs after an uptrend and is considered a top reversal signal. The bearish counterattack line is a less significant top reversal signal than the related dark cloud cover pattern. The first candlestick is a bullish candlestick. The second candlestick opens far above the close of the first day’s bullish candlestick but then retreats, closing at roughly the same price as the first day’s candlestick closing price. Thus, the second day candlestick is a large bearish candlestick. The large gap up on the second day gives bulls confidence that the upward trend will continue; but to the surprise of bulls, rather than moving ever higher, prices reverse downward and fill the gap and close at the same price level of the previous day’s close. The bull gained no ground that day.

Bullish Counterattack Line Candlestick Chart Example

A bullish counterattack line is shown on the chart above of the Financial SPDR ETF (XLF). The first day of the bullish counterattack line was a long bearish candlestick. The next day, prices gapped down, but the bulls were able to push prices to the same price level as the close of the bearish candlestick. If a trader were to combine the candlesticks of the second day of the bullish counterattack line with the following day candlestick, the combined candlestick would make up the second day of a piercing pattern that penetrated more than two-thirds of the way into the bearish candlestick on the first day.

Bearish Counterattack Line Candlestick Chart Example

A bearish counterattack line is shown on the chart above of Exxon Mobil (XOM). A multi-week uptrend precedes the bearish counterattack line pattern. A bullish candlestick is followed by a large gap up; however, the bulls are unable to maintain prices at or above the opening price and the bears end up bring prices down to the prior day’s closing price. After the bearish counterattack line, nine bearish candlesticks followed. 

Source :- http://www.finvids.com/Candlestick-Chart/Counter-Attack-Lines/

 

 

How to Spot Counter Attack Line Opportunities

What is a Counter Attack Line?

A counter attack line happens when there’s a price gap between the close and open of two sessions. The “counter attack” fully reverses the gap taking the price back to the close of the previous session.

A bullish counter attack line happens in a downtrend when a black candlestick is followed by a white candlestick that opens at a new low but then closes back at the close of the black candlestick. For this to happen, the market must gap sharply lower at the open but then rally to regain ground and close again at the same level.

Figure 1: Example bullish counter attack line © forexop

A bearish counter attack line is the precise opposite. They appear in uptrends when a white candlestick is followed by a black candlestick where the black gaps sharply higher at the open but closes at the same level as the last close. A bearish counter attack can only form when the market gaps significantly higher at the open.

Figure 2: A bearish counter attack pattern © forexop

Reliability of a Counter Attack Line

A counter attack line is seen as stronger if the candles producing the pattern are long relative to the others around them. This is especially important for the second or counter move candle.
Counter attack patterns with small, doji-type candles are routinely filtered out as noise.
Normally counter attack lines only appear when there’s a time interval between the close of the first candle and the open of the second. Though they can appear when a price is moving quickly, for example on the publication of relevant news.
Trend indicators, like moving averages, and oscillators don’t analyze open and close price action. For this reason counter attack lines are easily missed without the use of candle analysis software. On first sight a counter attack can look like it is moving in the direction of trend .

Market Psychology

Both types of counter attack line can suggest a sudden change in sentiment; this is why traders take careful note of them when looking for signs of trend reversals.
The opening move means that there’s a strong wave of buying or selling, which is enough to gap the opening level significantly higher (or lower).  But this creates an equally strong counter move on the sell-side (or buy-side).
In this pattern, the counter move, or counter attack line is suggestive of the new trend direction.
This is because the initial move, in the direction of the trend, is assumed to have been initiated by less informed traders who’re buying at the top, or selling at the bottom of a trend. The “counter attack” or fading is presumed to be from more informed traders, who’re selling the top or buying the bottom.
A counter attack signal is more relevant if it coincides with other signals that show the trend is overbought or oversold, for example when divergences are present.

How to Trade a Counter Attack Line

Bullish example

This first example is of a bullish counterattack line that’s developing in GBP/USD.

Figure 3: A bullish counter attack line, GBPUSD hourly © forexop

The counter attack candle is marked with the green up arrow. The signal triggers when the bearish, black candle is followed by the “gapping” white candle. At that point the trend is bearish.
This counter attack also agrees with a bullish divergence that appears either side of it and is marked on the chart. This gives additional support that sentiment is turning from bearish to bullish.
To trade a bullish counter attack:

• Wait for a counter attack line in a down trend
• Use the length of the candle pair to measure strength
• Check for other bullish confirmations, such as divergences
• Once identified, enter a pending buy order to open at or below the open of the black candle

Place the stop loss below the low of the white candle, and at least far enough away not to be triggered by whipsaw that’s likely to appear at a trend bottom. See this page for calculating an appropriate stop loss distance.
If the bullish trend develops further, increase the position size, within due risk limits. If appropriate, trail the take profit higher and stop loss higher as the trend progresses higher.

Bearish counter attack example

To trade a bearish counter attack:

• Wait for a counter attack pair in a bullish trend
• Use the gap distance to get an idea of counter strength
• Look for other bearish confirmations like divergences
• Enter a pending sell order to open at or above the open of the white candle

Figure 4: Example of a bearish counter attack, crude oil daily chart © forexop

Figure 4 highlights a bearish counter attack line emerging in Brent crude oil. In the daily chart a bearish trend is already establishing. A short-lived bullish retracement lifts the market higher for a time.
The rally ends with the counter attack signal, marked on the chart with the red down arrow.
This counter attack presents a lower risk trade because the bearish trend is already established and therefore the sell occurs in the direction of the trend.

Source :- https://forexop.com/candlesticks/counter-attack-line/

11th Day Chart Pattern / Bullish Harami Candlestick Pattern

          Bullish Harami Candlestick Pattern

The bullish harami is a two candlestick trend change signal that is potentially bullish if it occurs after a downtrend. According to Nison (1991, p. 80), the harami pattern is not as significant a reversal pattern as an engulfing pattern or hammer. A harami pattern is made up of a large candlestick followed by a small candlestick whose real body is between the real body of the first day’s large candlestick real body. During a downtrend, the real body of the first day is bearish and the small real body of the second day is bullish, but can be bearish as well. Nison (1994, p. 88) explains that after a downtrend, when the second day’s small real body candlestick is toward the bottom of the first day’s real body, it is called a low-price harami.
A related pattern is the three inside up pattern that is found at bottoms. The three inside up pattern is a confirmed bullish harami pattern where the first day is a bearish candlestick followed by a small body bullish candlestick where its price range is within the first day’s real body. The third candlestick is a bullish candle that opens within or above the real body of the second day and then closes above the high of the first day’s bearish candlestick. A less demanding form of the pattern requires that the third day close above the close of the second day’s candlestick.

Bullish Harami Cross Candlestick Pattern

A harami cross occurs when the second day is a doji rather than a small bullish or bearish real body. Nison (1991, p. 80) states that the harami cross should be viewed as a major reversal signal. Though the harami cross can occur after a downtrend, Nison suggests that the harami cross is more effective at tops (1991, p. 86).

Psychology of Bullish Harami

The significance of a harami pattern is illustrated next. During a downtrend a long bearish candlestick emerges, which reinforces that the bears are still in charge. Nevertheless, on the second day, rather than heading lower, which a trader would expect if the bears were still in charge, the price gaps higher. During the second day, the price moves slightly up and down, suggesting that neither the bears nor bulls are in charge. This indecision of the harami pattern suggests that prices could move sideways or could reverse upward because the bears’ downward move has been exhausted.

Traits that Increase a Bullish Harami's Effectiveness

Nison (1994, p. 87) gives important traits that increase a bullish harami’s importance:

• The more the real body of the second day is at the midpoint of the first day’s real body, the better the reversal of the trend. However, following a downtrend when the second day’s small real body candlestick is toward the bottom area of the first day’s candlestick real body, the greater the chance of consolidation rather than a reversal upward.
• The more the open, high, low, and close are within the prior day’s real body, the greater the chance of reversal.
• The smaller the shadows and real body of the second day and thus the more like a doji the second day is, the higher the probability of a full reversal.

Blended Candle Analysis of Bullish Harami = Hammer

Using blended candle analysis where the two days of the bullish harami pattern are combined into one day (open of day 1 candle to close of day 2 candle) is equivelent to a one candle hammer candlestick. The hammer is a bottom reversal candlestick pattern.

Harami Pattern Downtrend Consolidation and Support Example

After a multi-week rolling downward trend on the chart above of Intel Corporation (INTC), two large bearish candlesticks appeared pushing prices to a new low for the trend. However, the bears pushed too hard and the following day, the second day of the harami, gapped up. This small bullish candlestick of the second day of the harami pattern told traders that a change in trend could be happening. The day after the harami pattern, another bullish candlestick appeared and gave greater evidence that either prices would be consolidating or moving higher. On the seventh and ninth day after the harami pattern, the candlesticks tested and confirmed the support line established by the close of the bearish candlestick of the first day of the harami pattern.

Harami Cross Bottom Example

The chart above of the Gold ETF (GLD) shows an excellent example of the harami cross at a bottom. The chart illustrates a four day dramatic move downward, with a very large bearish candlestick on the fourth day. The following day’s doji that gapped higher to the midpoint of the large bearish candlestick suggests that the bears overshot themselves downward and that sentiment had radically changed the next day (the day the doji occurred). The large bearish candlestick established an area of support at its closing price that was confirmed weeks and months later.

Source:- http://www.finvids.com/Candlestick-Chart/Bullish-Harami-Pattern/

 

 

                                            Bullish Harami

The bullish harami is made up of two candlesticks. The first has a large body, while the second has a small body that is totally encompassed by the first. There are four possible combinations: white/white, white/black, black/white and black/black. Whether they are bullish reversal or bearish reversal patterns, all harami look the same. Their bullish or bearish nature depends on the preceding trend. Harami are considered potential bullish reversals after a decline and potential bearish reversals after an advance. No matter what the color of the first candlestick, the smaller the body of the second candlestick is, the more likely the reversal. If the small candlestick is a doji, the chances of a reversal increase.

In his book Beyond Candlesticks, Steve Nison asserts that any combination of colors can form a harami, but that the most bullish are those that form with a white/black or white/white combination. Because the first candlestick has a large body, it implies that the bullish reversal pattern would be stronger if this body were white. The long white candlestick shows a sudden and sustained resurgence of buying pressure. The small candlestick afterwards indicates consolidation. White/white and white/black bullish harami are likely to occur less often than black/black or black/white.
After a decline, a black/black or black/white combination can still be regarded as a bullish harami. The first long black candlestick signals that significant selling pressure remains, which could indicate capitulation. The small candlestick immediately following forms with a gap up on the open, indicating a sudden increase in buying pressure and potential reversal.

Micromuse (MUSE) declined to the mid-sixties in Apr-00 and began to trade in a range bound by 33 and 50 over the next few weeks. After a 6-day decline back to support in late May, a bullish harami (red oval) formed. The first day formed a long white candlestick, while the second formed a small black candlestick that could be classified as a doji. The next day's advance provided bullish confirmation and the stock subsequently rose to around 75.


Source :- https://school.stockcharts.com/doku.php?id=chart_analysis:candlestick_bullish_reversal_patterns

10th Day Chart Pattern / Bullish Engulfing Pattern

                                Bullish Engulfing Pattern

The bullish engulfing pattern is a two candlestick reversal pattern that occurs during a downtrend. The definition of a bullish engulfing pattern is as follows:

• The first day is a bearish candlestick, but can be a doji as well.
• The second day is a bullish candlestick that is larger in height than the first day’s candlestick.
• Lastly, the open and low of the second day should be lower in price than the first day’s close and the second day’s close and high should be higher in price than the first day’s open.
• The strictest description of a bullish engulfing candlestick pattern requires that the real body of the second day be larger than the first day’s candlestick which would include its upper and lower shadow.

Sometimes the bullish engulfing pattern is referred to as a three outside up pattern. The difference being the addition of a bullish candlestick on the third day that closes above the high of the second day’s bullish candlestick.

Traits That Improve the Bullish Engulfing Pattern's Effectiveness

According to Nison (1991, p. 39) the following traits increase the odds that a bullish engulfing pattern is an important reversal indicator:

• The first day has a very small real body and the second day has a very long real body.
  Reasoning: A small bearish candlestick after a downtrend shows the bears are unable to push prices as low as they have during the prior trend. A small bearish candlestick shows the bears have less power; whereas, a large bearish candlestick shows the bears having more power. Likewise, a large bullish candlestick that defies the previous downtrend shows that bulls came back into the market and the bears were unable to stop them. The longer the bullish candlestick the greater the show of force by the bulls.
• The bullish engulfing pattern occurs after a long downtrend or a very quick move lower.
  Reasoning: Sellers or traders who are shorting have probably already done so after an extended move downward and therefore there are fewer potential sellers or shorters. In the case of a sudden move downward, often these quick moves are overdone and are susceptible to reversals.
• Volume on the second day candlestick is very large.
  Reasoning: The fact that unusually high amounts of volume were transacted on a large bullish candlestick means that there was a large turnover of shares throughout the day and that traders had to bid up prices in order to buy shares, which is very bullish. Explaining this using supply and demand basics, if there are less traders willing to sell their shares (ie less supply) and there are more traders willing to buy shares (ie more demand), then prices should rise, hence creating a bullish candlestick where prices opened and climbed throughout the trading day to close higher.
• The second day’s real body is larger than several previous days’ candlestick heights.
  Reasoning: Many small candlesticks show indecision. A large bullish candlestick that is larger than the previous indecisive candlesticks shows that the market has finally made a decision and the decision is to move upward.
• The bullish engulfing pattern occurs in an area of support.
  Reasoning: Support is an area where historically bulls have come into a market to buy at a certain price level. If the bullish engulfing pattern occurs at this support price level, then a trader might feel more confident buying because the support acts as another bullish confirmation.

Trading Suggestions for the Bullish Engulfing Candlestick Pattern

For those traders that go long based on the bullish engulfing pattern, Nison (2003, p. 66) suggests placing a stop loss order under the lows of the bullish engulfing pattern, since the bullish engulfing pattern should act as an area of support.

Bullish Engulfing Pattern Blended Candle = Hammer

When the first day and the second day of the bullish engulfing pattern are combined, it often looks like a hammer candlestick, which is also a bullish candlestick pattern.

Bullish Engulfing Pattern Confirmation of Support

The chart above of the Nasdaq 100 ETF (QQQ) shows a blue support line and the low of the second day of the bullish engulfing pattern bouncing off of that support. From the first day’s bearish candlestick closing price, it can be inferred that the next day prices gapped down to the open of the second day’s candlestick. After the bears tested support, the bulls were able to push prices to close above the first day’s opening price. Therefore the second day’s bullish candlestick engulfed the real body of the first day.

Bullish Engulfing Pattern Creating New Support

Nison (1994, p. 78) suggests that bullish engulfing patterns can become an area of support. The chart above of Exxon Mobil illustrates this concept well. After a long downtrend a bullish engulfing pattern emerges with many solid traits: the first day candle is small; the second day candle is very large engulfing two candlesticks prior to it; and it occurs after a long, continual downtrend. After the bullish engulfing pattern prices rally upward; however prices begin to trend back down until they reach a low equal to the low of the bullish engulfing pattern’s second day candle low. An aggressive trader could attempt to buy at the price level established by the bullish engulfing pattern over 30 trading days prior. In this specific instance, the trader would have been rewarded favorably.

Bullish Engulfing Pattern 2nd Day High Volume Confirmation

Notice on the chart above of the Energy SPDR ETF (XLE) how the second candle of the bullish engulfing pattern had the highest volume of any of the day’s shown in the chart. It is important confirmation to see high volumes accompany large bullish candlesticks. This shows that bulls are serious about buying that day.

Source :- http://www.finvids.com/Candlestick-Chart/Bullish-Engulfing-Pattern/

 

What is an engulfing candlestick pattern?

Engulfing candlestick patterns are comprised of two bars on a price chart. They are used to indicate a market reversal. The second candlestick will be much larger than the first, so that it completely covers or ‘engulfs’ the length of the previous bar. There are two types:

1. Bullish engulfing candlestick patterns
2. Bearish engulfing candlestick patterns

They can indicate that the market is about to change direction after a previous trend. Whether this is bullish or bearish signal will depend on the order of the candles.
The body of a candlestick represents the open-to-close range of each trading period, which can range from a second to a month or more – depending on your chart settings. Looking at two bars next to each other will provide a clear comparison of the market movement from one period to the next. The colour of the candle will indicate whether the price direction has been up (green) or down (red).
For a perfect engulfing candle, no part of the first candle can exceed the wick (also known as the shadow) of the second candle. This means that the high and low of the second candle covers the entirety of the first one. However, the main focus is on the real body of the candle.
Engulfing candles are one of the most popular candlestick patterns, used to determine whether the market is experiencing upward or downward pressure. However, it is important to remember that engulfing candles are a lagging technical indicator – meaning they occur after price action – as they require the previous two candlesticks’ worth of data before the signal is given.

 

Bullish engulfing candles explained

A bullish engulfing pattern appears in a downtrend. It is formed of a short red candle next to a much larger green candle.
The first candlestick shows that the bears were in charge of the market. Although the second period opens lower than the first, the new bullish pressure pushes the market price upwards – often to such an extent the second candle is twice the size of the previous one.

What do bullish engulfing candlesticks tell traders?

The bullish candlestick tells traders that buyers are in full control of the market, following a previous bearish run. It is often seen as a signal to buy the market – known as going long – to take advantage of the market reversal. The bullish pattern is also a sign for those in a short position to consider closing their trade.
Although the wicks of the candles are not as important as the bodies for an engulfing pattern, the second candle in a bullish engulfing can provide a good indication of where to place a stop-loss for a long position. This is because it shows what the minimum price someone is willing to accept in exchange for an asset at that given point in time. So, if the current uptrend does reverse, you can see a clear exit point for your position.
When looking at a bullish engulfing pattern it is important to look at the previous candles as well to confirm the price action, and use the appropriate technical analysis indicators to confirm the reversal.
Practise using bullish engulfing candlestick patterns in a risk-free environment by opening an IG demo account.

Example of a bullish engulfing pattern

Looking at the below GBP/USD price chart, we can see that the bullish engulfing pattern consists of a green candle engulfing a previous red candle.
Although the wick of the red candle is longer than the green, the body of the green is nearly twice the size of its predecessor. The following seven days indicate a bullish trend, before a bearish reversal can be seen.
 

Bearish engulfing candles explained

A bearish engulfing pattern is the opposite of a bullish engulfing; it comprises of a short green candle that is completely covered by the following red candle.
The first candlestick shows that the bulls were in charge of the market, while the second shows that bearish pressure pushed the market price lower. The second period will open higher than the previous day but finish significantly lower.
 

What do bearish engulfing candlesticks tell traders?

A bearish engulfing pattern tells traders that the market is about to enter a downtrend, following a previous increase in prices. The reversal pattern is a signal that bears have taken over the market and could be about to push the prices down even further – it is often seen as the sign to enter a short position or ‘short-sell’ the market.
The pattern is also a sign for those in a long position to consider closing their trade.
Again, although the wicks are usually not considered a core part of the pattern, they can provide an idea of where to place a stop-loss. For a bearish engulfing pattern, you’d put a stop-loss at the top of the red candle’s wick as this is the highest price the buyers were willing to pay for the asset before the downturn.
Practise using bearish engulfing candlestick patterns in a risk-free environment by opening an IG demo account.

Example of a bearish engulfing pattern

By looking at the USD/JPY chart below, we can see an example of a bearish reversal. The green candlestick signifies the last bullish day of a slow market upturn, while the red candlestick shows the start of a significant decline.
The second candle opens at a similar level but declines throughout the day to close significantly lower.
 

 

How to use engulfing candlesticks

Engulfing candlesticks can be used to identify trend reversals and form a part of technical analysis. They are most commonly used as a part of a forex strategy as they can provide quick indications of where the market price might move, which is vital in such a volatile market.
Engulfing candlesticks are just one part of a technical analysis strategy. They are usually used alongside volume indicators – such as the RSI – that can show the strength of a trend.
To start using engulfing candlesticks, you can:

1. Create a demo account to practise trading in a risk-free environment
2. Open a live trading account to put your technical analysis into action

Alternatively, if you’d like to learn more about financial markets, technical analysis and candlesticks specifically, you can visit the IG Academy.

 

Bullish and bearish engulfing candlestick patterns summed up

•  Engulfing candlestick patterns are comprised of two bars on a price chart
• They are used to indicate a market reversal
• The second candlestick will be much larger than the first, so that it completely covers or ‘engulfs’ the length of the previous bar
• A bullish engulfing pattern will be made of a shorter red bar being engulfed by a longer green bar. This indicates a bearish trend is coming to an end, ready for an uptrend
• A bearish engulfing pattern will be made of a shorter green bar being engulfed by a longer red bar. This indicates a bullish trend is coming to an end, ready for a downtrend
• They are a common part of a forex trading strategy
• Engulfing candlesticks are a lagging indicator, meaning they give the signal to enter a trade after the price movement has occurred

 

Source :- https://www.ig.com/en/trading-strategies/how-to-trade-using-bullish-and-bearish-engulfing-candlesticks-191114

9th Day Chart Pattern / Bullish Belt Hold Line Candlestick

              Bullish Belt Hold Line Candlestick

A belt hold line is a single candlestick pattern. A bullish belt hold occurs when prices open on the low of the day and then immediately move higher creating a long bullish candlestick. The bullish belt hold is also referred to as a white opening shaven bottom.

Bearish Belt Hold Line Candlestick

A bearish belt hold occurs when prices open on the high of the day and then move down for the remaining period, thus creating a long bearish candlestick. The bearish belt hold is called a black opening shaven head.

Belt Hold Lines Forecasting Future Uptrends and Downtrends

According to Nison (1991, p. 94), if a bullish belt hold occurs at low prices, it forecasts a rally; likewise, if a bearish belt hold occurs at areas of high prices, it signals a top reversal; moreover, the longer the height of the belt hold candlestick, the more important it becomes. It should be noted that if prices fall below the open/low of the bullish belt hold, then the pattern is void and similarly, if prices rise above the open/high of the bearish belt hold, then the pattern is void.

Bullish Belt Hold Candlestick Chart Example

The chart above of the Silver ETF (SLV) illustrates a bullish belt hold off of an area of support shown in the chart above with a blue line. The day of the bullish belt hold opened with a gap down into the area of resistance. Immediately, bulls jumped into the market and pushed prices higher and created a large bullish candlestick.

Bearish Belt Hold Candlestick Chart Example

The chart above of the Russell 2000 Index ETF (IWM) is an example of a bearish belt hold and is also a bearish engulfing pattern. The open of the bearish belt hold candlestick is a gap up from the previous day’s close. However, the prices after the open immediately fall downward and close creating a large bearish candlestick that eliminates the past two days’ gains and begins a downward trend.

Source :- http://www.finvids.com/Candlestick-Chart/Belt-Hold-Lines/

 

 

 

How to Day Trade using the Belt Hold Line Pattern

The belt hold line candlestick is basically the white marubozu and black marubozu within the context of a trend. The bullish belt hold candle opens on the low of the day and closes near the high. This candle presents itself in a downtrend and is an early sign that there is a potential bullish reversal. Conversely the bearish belt candle opens at the high of the day and closes near the low. This candle presents itself in an uptrend and is an early sign that there is a potential bearish reversal. These candles are reliable reversal bars, but lose their importance if there are a number of belt hold lines in close proximity.

Not to complicate the matter further, but the pattern can also act as a continuation pattern, which we will cover later in this post.

Bullish Belt Hold Line

The bullish belt hold line gaps down on the open of the bar, which represents the low of the bar, and then rallies higher. Shorts who entered positions on the open of the bar are now underwater, which adds to the buying frenzy.

Bullish Belt Hold Line

You are now looking at a chart which shows the bullish belt hold line candlestick pattern. As you see, the trading day starts with a big bearish gap, which is the beginning of the pattern.
The price action then continues with a big bullish candle.
The candle has no lower candle wick and closes at its high.

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This price action confirms both a bullish marubozu and bullish belt hold line pattern.

Bearish Belt Hold Line

The bearish belt hold line gaps up on the open of the bar, which represents the high of the bar, and then sells off. Longs who entered positions on the open of the bar are now in losing positions, which adds to the selling frenzy.

Bearish Belt Hold

As you see, the pattern here has the same characteristics as the bullish belt hold line but in the opposite direction. The trading day starts with a bullish gap.
A couple of periods later, the stock prints a strong bearish candle.  The stock has no upper candlewick and closes at its lowest point, which again confirms both a bearish marubozu and bearish belt hold line pattern.

Trading the Belt Hold Line Pattern

Now that you’re familiar with the bullish and bearish variation of the belt hold line pattern, let’s dive into how to trade the pattern.
The good thing about the belt hold line trading pattern is that the rules are easy to implement.
Of course, you have to be careful to not lose your self-control, but that’s always the case when day trading.

Entry on Belt Hold Line Candle

When you spot a belt hold line candlestick, you want to open a position in the direction of the candle.
It’s literally that simple!

Bullish Belt Hold Line Pattern

Above you see an example of a bullish belt hold line. This is a big bullish candle and a day trader should go long right after the candle closes as shown on the image.

Stop Loss on Belt Hold Line Candle

Like in every other trade, you should always protect your belt hold trades with a stop loss. Your stop loss should be placed directly beneath the low of the entry candle.
However, since the marubozu candle appears during higher volatility, the price action will often touch the stop if placed right on the other side of the candle.

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Therefore, I recommend you place the stop one candle away from the marubozu.
Hence, if you are buying a stock on a belt hold signal, you should place your stop loss below the low of the candle that precedes the closing marubozu candle.
Conversely, if you are selling a security on a belt hold signal, your stop loss order should be located above the candle that precedes the marubozu.

Bullish Belt Hold Line – Stop Loss

You are now looking at the same Bullish Belt Hold example. However, this time we added a stop loss order below the lower candlewick of the previous candle.
Again, the bullish or bearish belt hold line candlestick is often large in size relative to the preceding candlesticks.  So, you have to be prepared for the volatility as the stock retraces its move from scalpers taking profits.
So, picking the previous candles extreme point as a stop loss level, helps prevent you from getting stopped out before the run.

Profit Targets with the Belt Hold Line Candlestick Pattern

When you implement a belt hold line trade you should set a preliminary target.
The first option is to close your position once the stock runs at least twice or three times the size of the marubozu candlestick pattern.
The other profit taking approach is to use price action rules to determine when to exit your trades.
This if course will require more skill and most importantly discipline to allow this level of subjectivity into your trading system.

Belt Hold Line Trading Strategy

Now that you are familiar with the belt hold line candlestick pattern and the associated trading rules, I will now show you a few real-life examples.

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We will enter our trades right after the closing of the marubozu candle of the belt hold pattern. Our stop loss will be located on the opposite side of the candle that precedes the marubozu candle.
We will stay in our trades until the price action completes twice the size of the closing marubozu.

Belt Hold Line Trading Strategy

Above is the 5-minute chart of Master Card. The image illustrates a couple of belt hold line trades.
The image starts with a slight price decrease. Suddenly, the price action closes a relatively big bearish marubozu candle. This confirms the presence of a bearish belt hold candlestick pattern.
Therefore, we short MA (blue) as prescribed in the trading strategy.
Notice that our stop loss is located above the candle, which comes before the marubozu.
After we enter the trade, the price creates a slight correction and then resumes the bearish trend. However, right before the price action completes twice the size of the candle pattern, we get another bearish marubozu on the chart.
Therefore, we confirm a second belt hold line and we short Master Card again (red signal). Again, we place our stop loss above the high of the candle that precedes the bearish marubozu.
A couple of candles after we enter the second trade, the price action completes twice the size of the first marubozu.
However, are you sure you are not forgetting something? Exactly! We have a second trade open! Now we pursue twice the size of the marubozu we used to open that position.
The interesting here is that the price action enters a strong correction of the bearish trend. The Master Card stock starts increasing slightly and goes above the marubozu candle. This is why I told you always to use the candle above when setting your stop loss. This way our stop contains the price action in a very good way and the MA stock doesn’t touch our stop. We are still in the game!

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The price action then resumes the bearish trend. The price decreases with twice the amount of the opening marubozu and our target is completed and we close the trade.
Let’s now go through another belt hold trading example.

Bullish Belt Hold Line – Trading Strategy

You are now looking at the 5-minute chart of JP Morgan Chase & Co. The image illustrates a bullish trade based on a bullish belt hold candle.
The chart starts with a price reversal in the first four candles. A couple of candles later, the price action closes a bullish marubozu, a.k.a. a bullish belt hold line. Therefore, we open a long trade as stated in our strategy.
Notice that the previous candle is located above the bullish marubozu. For this reason, in order to set up our stop loss, we use the last candle, which has its body below the opening price of the marubozu. The point is to have the stop a bit below the belt hold line.
After we enter the trade, JPM begins to increase.
When the first impulse is completed, the price enters a correction phase, followed by a new trend impulse. The second trend impulse pushes the price action to reach twice the size of the body of the bullish marubozu, which is our exit signal.
The profit taking strategies of these two trades were based on twice the size of the belt hold pattern. Let’s now review a strategy, where the profit taking strategy relies solely on price action.

Bullish Belt Hold Line – Stop Loss based on Price Action

This is the 5-minute chart of Ford Motor Company.
The trading action begins with a price decrease. Suddenly, a bullish marubozu prints on the chart.
Since we get the bullish belt hold on the chart, we buy Ford. The stop loss (1) should be placed at the low of the previous candle as shown on the image.
Ford begins to rally after and slight correction.
Since we follow the price action, we adjust the stop to the bottom of the correction. We now have two bottoms on the chart and we use them to build a bullish trend (blue). This trend could be used to close the trade in case of a breakout. The next trend impulse is stronger. The price increases further and creates another bottom, where we place our third stop loss order. Now we have a locked-in profit, which is guaranteed by the stop. The next price increase is slight and the price enters a consolidation phase afterwards. We use the lower level of the consolidation for our fourth stop loss.
The consolidation then brings the price to the blue trend. At the same time comes the end of the trading session, therefore we close the trade.
You of course can use more complicated price action rules to exit the trade, but you will find often than not, trend lines and candlesticks will do the trick.

Conclusion

1. The belt hold line is a marubozu candle.
2. The belt hold is a trend continuation pattern.
3. There are two types of belt hold line candles:

• Bullish belt hold line (bullish marubozu)
• Bearish belt hold line (bearish marubozu)

4. When you see a belt hold candle pattern, you should enter the market in the direction of the formation.
5. You should place a stop loss on your belt hold trades beyond the high or low of the preceding candle (depending on the trend).
6. You have two options to take profits when trading the belt hold line chart figure:

• You can use the size of the pattern to set a fixed target in advance two or three times the body of the pattern.
• You can use price action rules to determine when to exit the trade.

7. If you would like to take a more conservative approach to your trade entry, you could wait for the stock to retrace 50% or more of the marubozu candle. Again, this candle is often huge, so you could limit your risk by waiting for the pullback.  Of course, you might miss the trade if it takes off, but I would prefer to protect my account instead of focusing on potential big gains.

 

Source :-  https://tradingsim.com/blog/belt-hold-line/

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8th Day Chart Pattern / Bearish Harami Candlestick Pattern

           Bearish Harami Candlestick Pattern

The bearish harami is a two candlestick trend change signal that is potentially bearish if it occurs after an uptrend. According to Nison (1991, p. 80), the harami pattern is not as significant a reversal pattern as an engulfing pattern or hammer. A harami pattern is made up of a large candlestick followed by a small candlestick whose real body is between the real body of the first day’s large candlestick real body. During an uptrend, the real body of the first day is bullish and the second day’s small real body is bearish; however, the second day’s real body can be bullish as well. Nison (1994, p. 88) explains that after an uptrend when the second day’s small real body candlestick is toward the upper part of the first day’s real body, it is referred to as a high-price harami.
A related pattern is the three inside down pattern that is found at tops. The three inside down is a confirmed bearish harami pattern where the first day is a bullish candlestick followed by a small bearish candlestick with its price range within the real body of the first day. The additional day, the third day is a bearish candlestick that opens within or below the real body of the second day and then closes below the low of the first day’s bullish candlestick. Some traders only require that the third day close below the close of the second day.

Bearish Harami Cross Candlestick Pattern

A harami cross occurs when the second day is a doji rather than a small bullish or bearish real body. Nison (1991, p. 80) states that the harami cross should be viewed as a major reversal signal. Though the harami cross can occur after a downtrend, Nison suggests that the harami cross is more effective at tops (1991, p. 86).

Psychology of Bearish Harami

The significance of a harami pattern is illustrated next. During an uptrend, a long bullish candlestick appears, that likely makes a new high. It is clear that the bulls are in charge. However, the second day gaps down and moves slightly up and down throughout the day, but the candlestick ends up closing where the day opened. If the bulls were still in charge, the next day might have gapped up higher and made another new high for the uptrend, but it didn’t, the prices gapped lower and closed lower than the previous day. Therefore, the harami pattern suggests that prices could go downward or sideways in the short term because the bullish upward pressure has diminished.

Traits that Increase a Bearish Harami's Effectiveness

Nison (1994, p. 87) gives important traits that increase a harami’s importance:

• The more the real body of the second day is at the midpoint of the first day’s real body, the better the reversal of the trend. However, after an uptrend when the harami’s second day real body is toward the upper end of the first day’s real body, then the more likely prices will consolidate as opposed to reverse downward.
• The more the open, high, low, and close are within the prior day’s real body, the greater the chance of reversal.
• The smaller the shadows and real body of the second day and thus the more like a doji the second day is, the higher the probability of a full reversal.

Blended Candle Analysis of Bearish Harami = Shooting Star

Using blended candle analysis where the two days of the bearish harami pattern are combined into one day (open of day 1 candle to close of day 2 candle) is equivelent to a one candle shooting star candlestick. The shooting star is considered a bottom reversal candlestick pattern.

Harami Pattern Uptrend Consolidation and Resistance Example

Often a harami appears after a strong upward move when bulls pushed prices up too far and too fast. The chart above of Intel Corporation (INTC) shows two large gaps upward followed by a large bullish candlestick. However, the following day gapped lower to begin the day and ended the day even lower. The small real body of the second day of the harami pattern visually illustrated indecision. If a trader predicted that prices would consolidate or begin to fall, that trader would have been correct. Prices never surpassed the close of the first day bullish candlestick of the harami pattern. After the area of resistance illustrated by the blue line was tested and confirmed, prices began their downward retreat. The harami pattern above successfully predicted price consolidation and a reversal downward.

Harami Cross Top Example

A harami cross is shown above on the chart of Exxon Mobil (XOM). After about a 10% move higher and a large bullish candlestick that made a new high for the uptrend, a doji appears. Since a doji is a perfect example of indecision and since the open and close of the doji are lower than the close of the previous day’s bullish candlestick, the bulls should be worried that the trend is about to change, which on the chart above, shows that it did change to the downside.

Source :- http://www.finvids.com/Candlestick-Chart/Bearish-Harami-Pattern/

 

 

 

Harami (Inside Day) Candlestick Pattern – Bullish Harami, Bearish Harami

Bhargav Nanduri

What Is The Meaning Of Harami?

No, it is not the word used in Hindi language in this context. 😉 Harami means pregnant in Japanese. The candlestick pattern was named after it because of the way it looks. In English it is called as an Inside Day candlestick.

Formation Of The Harami Candlestick Pattern

It is formed by the combination of two candlesticks, one containing the other. First candle with long real body is compared to ‘mother’ and second candle with small real body is compared to ‘baby’ in the womb. Hence the name of the candlestick pattern! The second candle is generally opposite in color to the first candle.

Future of the baby is unknown. It may climb up the life or it may keep falling down the life. In other words, this candlestick pattern on charts shows indecision in the market. It can appear anywhere on the chart, i.e. at the end of a bull run/up trend or at the end of a bearish/down trend or along the ongoing trend.

 

 Psychology Behind The Harami Pattern:-
As the small real body of the second candle lies within the range of the long real body of the first candle, it shows indecision in the market. Also that the tug of war continued between bulls and bears through out the day but neither of them were really successful.

Types Of Harami Candlestick Patterns

There are two types of harami candlestick patterns – the bullish harami and the bearish harami.

Bullish Harami

The bullish harami pattern appears at the end of a down trend and signals a bullish trend reversal. The first candle is a long red/bearish candle making a new low as expected during bearish sentiment. But the next day, market opens at a price higher than the previous day’s close, creating a bit of panic among the bears. The price moves up due to short covering and fresh buying interest. However, at the high point of the day bears are again interested. At the end of the day, the price closes below the previous day’s opening price. Hence, the second candle is a green/bullish candle within the range (open – close) of the first candle.
The appearance of the green candle when least anticipated in the bearish trend, is expected to panic the bears and reverse the trend.

Bearish Harami

The bearish harami pattern appears at the top of an up trend and signals a bearish trend reversal. The first candle is a long green/bullish candle making a new high as expected during bullish sentiment. But the next day, market opens at a price lower than the previous day’s close, creating a bit of panic among the bulls. The price moves up down due to long unwinding and fresh selling interest. However, at the low point of the day bulls are again interested. At the end of the day, the price closes below the previous day’s closing price. Hence, the second candle is a red/bearish candle within the range (open – close) of the first candle.
The appearance of the red candle when least anticipated in the bullish trend, is expected to panic the bears and reverse the trend.

 Along the trend, it is a continuation pattern. Harami candlestick will keep appearing along the course of a trend, denoting a slow down before the price continues its journey as per the prior trend.

 Significance Of Harami Pattern

 If harami pattern is a part of NR4 (Narrow Range of 4 days) or NR7 (Narrow Range of 7 days), it will have more significance. It is a different trading strategy. The trading range for several days will be compressed like a spring and its breakout gives huge movement.

 In any case Harami candlestick pattern should alert you to be cautious. You should be prepared to cover your long or short position, or to establish a new position. All these action depends on the following day’s confirmation candlestick.

Source : -http://aimarrow.com/technical-analysis/harami-candlestick-pattern/