Bearish Mat Hold Candlestick Pattern (Backtest)

Last Updated on January 11, 2023

The bearish mat hold pattern is a rare bearish pattern that comprises a long bearish candle, followed by three small bullish candles, and lastly, a long bearish candle that flips the power from buyers to sellers.

Candlestick patterns are a popular tool among technical traders, and the Bearish Mat Hold is no exception. This powerful pattern can indicate a potential market reversal and be a valuable addition to any trader’s toolkit.

In this article, we will explore the key elements of the Bearish Mat Hold pattern, how to identify a valid pattern, and how it differs from other candlestick patterns. We will also delve into the advantages and disadvantages of trading the Bearish Mat Hold, as well as common mistakes traders make and how you can avoid them.

Finally, we will cover how trading volume, risk profile, and technical analysis can impact a Bearish Mat Hold trade, how to use this pattern to determine entry and exit points, and best practices for managing risk and creating a trading plan with the pattern. So, let’s get started.

Table of contents:

What is the Bearish Mat Hold candlestick pattern and how does it indicate a potential reversal?

Bearish Mat Hold

If we zoom out such a pattern can take a form like this:

Bearish Mat Hold backtest

The Bearish Mat Hold candlestick pattern is a bearish reversal pattern that consists of five candlesticks. It is named after the Japanese word “mat hold,” which means “waiting.” This pattern is formed when the market is uptrend, but a bearish candlestick appears, followed by three small bullish candlesticks. The final candlestick is bearish and closes below the low of all the candlesticks.

This pattern is a strong indicator of a potential reversal because it shows that the bears are taking control of the market after the bulls had previously been in charge. The three bullish candlesticks in the middle of the pattern may suggest that the bulls are trying to regain control. Still, ultimately they are unsuccessful, as the last bearish candlestick indicates that the bears have taken over.

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What Other Indicators Should Be Used To Confirm A Bearish Mat Hold Candlestick Pattern?

  • Moving Average Convergence Divergence (MACD)

The MACD is a momentum indicator that measures the relationship between two moving averages of price. A bearish divergence occurs when the price makes higher highs, but the MACD makes lower highs. This divergence can signify that the uptrend is losing momentum, and a reversal may be imminent.

  • Relative Strength Index (RSI)

The RSI is a momentum indicator that measures the strength of a security’s price action. A reading above 70 is considered overbought, while a reading below 30 is considered oversold. If the RSI is overbought at the time of the bearish mat hold pattern, it could be a sign that the security is due for a pullback.

How Can Traders Identify A Valid Bearish Mat Hold Candlestick Pattern?

The Bearish Mat Hold pattern consists of five candlesticks, the first being bearish, followed by three bullish candlesticks, and finally, a bearish candlestick to complete the pattern.

To identify a valid Bearish Mat Hold pattern, traders should look for the following characteristics:

  • The first candlestick should be bearish, with a long body. This indicates that there is strong selling pressure in the market.
  • The next three candlesticks should be bullish, with short bodies and small upward wicks. This suggests some buying pressure in the market, but it is not strong enough to overcome the selling pressure from the first candlestick.
  • The final candlestick should be bearish, with a long body. This shows that the selling pressure has returned and that the market will likely continue trending downward.

To confirm the validity of the pattern, traders should also consider the market’s overall trend. If the market is already in a downtrend, the Bearish Mat Hold pattern can be seen as a confirmation of the trend. On the other hand, if the market is in an uptrend, the pattern may be seen as a reversal signal.

How Does The Bearish Mat Hold Candlestick Pattern Differ From Other Candlestick Patterns?

The Bearish Mat Hold pattern differs from other candlestick pattern in different ways, here are a few of them:

  • Length

While patterns like the Bearish Harami Cross and the Bearish Engulfing consist of only two candles, the Bearish Mat Hold comprises five, which can provide a more detailed picture of market sentiment.

  • Size Of The Candles

In the Bearish Mat Hold, the first and last candles are long and bearish, while the middle three are small and bullish. This indicates some indecision in the market, with bulls and bears vying for control. In contrast, the Bearish Engulfing pattern is characterized by a single large bearish candle that engulfs the previous candle, signaling a strong bearish sentiment.

The Bearish Harami Cross is similar to the Bearish Mat Hold in that it also consists of a bearish candle followed by a smaller bullish candle. However, the Bearish Harami Cross is a two-candle pattern and does not have the additional bullish candles found in the Bearish Mat Hold.

What Are The Advantages And Disadvantages Of Trading The Bearish Mat Hold Candlestick Pattern?

Here are some of the advantages and disadvantages of trading the bearish mat hold pattern:

Advantages

  1. The three small bullish candlesticks in the middle of the pattern indicate a temporary pause in the downtrend. This can give traders a lower-risk entry point, as they can wait for the pattern to form fully before entering a trade.
  1. The long bearish candle at the end of the pattern confirms the reversal and signals that the downtrend is likely to continue. This can provide traders with a clear exit point, as they can close their positions once the long bearish candle appears.
  1. The Bearish Mat Hold pattern can be used with other technical indicators and analysis techniques to confirm the reversal and increase the chances of a successful trade.
  1. By trading the Bearish Mat Hold pattern, traders can potentially profit from both the reversal and the continued downtrend, providing a potentially lucrative trading opportunity

Disadvantages

  1. Limited Profit Potential

One of the significant disadvantages of trading the Bearish Mat Hold pattern is that the profit potential is limited. This is because the pattern typically occurs after a significant downtrend, which means that the bears are already in control of the market. As a result, you may only be able to capture a small portion of the price decline.

  1. False Breakout Risk

Another disadvantage of trading the Bearish Mat Hold pattern is the risk of a false breakout. This occurs when the bears fail to maintain control of the market and the bulls take over, causing the price to rise again. This can be particularly frustrating for traders who have placed short trades based on the Bearish Mat Hold pattern, as they may lose money on these trades.

  1. Difficulty Identifying the Pattern

One of the biggest challenges of trading the Bearish Mat Hold pattern is accurately identifying it. This is because the pattern consists of five candlesticks, and many other patterns may resemble it. As a result, traders may struggle to distinguish between a genuine Bearish Mat Hold pattern and a false signal, which can lead to costly mistakes.

What Are Some Common Mistakes Traders Make When Trading The Bearish Mat Hold Candlestick Pattern?

Here are some common mistakes traders make when trading the bearish mat hold pattern:

  • Trading The Pattern In Isolation

It is important to remember that the bearish mat hold pattern is just one piece of the puzzle and should not be traded in isolation. Make sure to incorporate other technical and fundamental analyses, such as trend lines, support and resistance levels, and economic news, to confirm the validity of the pattern.

  • Not Waiting For Confirmation

The bearish mat hold pattern is a reversal pattern, which means it signals a potential change in trend. However, it is essential to wait for confirmation before entering a trade. This can come from a breakdown of the support level or a bearish follow-through candlestick pattern.

  • Not Setting Proper Stop Losses

It is essential to protect your capital by setting stop losses when trading reversal patterns like the bearish mat hold. Set your stop loss above the high of the large white candlestick or at a level that aligns with your risk tolerance and trade plan.

  • Not Having A Defined Profit Target

In addition to setting stop losses, it is also essential to have a defined profit target when trading the bearish mat hold pattern. This can be a support level or a ratio of risk to reward that aligns with your trade plan.

By avoiding these common mistakes, you can improve your chances of success when trading the bearish mat hold pattern. Remember to always use proper risk management techniques and to never trade with money that you cannot afford to lose.

How Do Traders Use The Bearish Mat Hold Candlestick Pattern To Create A Trading Plan?

To create a trading plan using the bearish mat hold candlestick pattern, traders should first identify the pattern on a chart.

Once the pattern has been identified, traders should consider the context in which it appears. This may include looking at the overall trend, as well as any other technical indicators or chart patterns that may be present.

Traders can then use this information to determine their entry and exit points. For example, they may choose to enter a short position when the bearish mat hold pattern appears and then exit the trade when the trend reverses or when their profit targets have been met.

What Are The Best Practices For Managing Risk Associated With Trading The Bearish Mat Hold Candlestick Pattern?

If you are considering trading the bearish mat hold pattern, it is crucial to manage the risk associated with this strategy. Here are some best practices to follow:

  • Use Stop Losses

A stop loss is an order to sell a security when it reaches a specific price. It is a risk management tool that helps to minimize potential losses. When trading the bearish mat hold pattern, it is a good idea to set a stop loss at a level above the high of the white candlestick. This will help to protect you from potential losses if the market moves against you.

  • Use A Risk-reward Ratio

A risk-reward ratio measures the potential reward versus the risk of a trade. A ratio of 1:2 means that for every $1 of potential risk, there is $2 of potential reward. When trading the bearish mat hold pattern, aim for a risk-reward ratio of at least 1:2. Your potential profit should be at least twice the size of your possible loss.

  • Trade With A Plan

It is vital to have a clear trading plan when dealing with any market condition. This should include entry and exit points, as well as risk management strategies. When trading the bearish mat hold pattern, have a plan before entering the market.

  • Use A Diversified Portfolio

Diversification is a risk management strategy that involves investing in a variety of assets. This helps to spread risk and reduce the impact of any one investment on your overall portfolio. When trading the bearish mat hold pattern, consider diversifying your portfolio to reduce overall risk.

By following these best practices, you can effectively manage the risk associated with trading the bearish mat hold pattern and increase your chances of success in the market. As with any trading strategy, it is essential to research and understand the potential risks and rewards before making any trades.

Summing Up

In order to effectively use the bearish mat hold pattern, it is important to consider key elements such as the size and position of the bearish candle, the volume of trading activity, and the overall trend of the market.

By following best practices such as incorporating other technical indicators and considering the context of the market, traders can increase the chances of success when using the bearish mat hold pattern in their trading strategies.

FAQs

Here are short answers to the most burning questions about trading this candlestick pattern:

What Types Of Trading Can The Bearish Mat Hold Candlestick Pattern Be Used For?

The Bearish Mat Hold candlestick pattern can be used for all types of trading, including stocks, options, forex, and futures.

What Is The Typical Risk/Reward Ratio Associated With Trading A Bearish Mat Hold Candlestick Pattern?

The typical risk/reward ratio for trading a Bearish Mat Hold pattern is not fixed and will depend on the specific trade and market conditions.

What Trading Strategies Are Best Suited For Trading The Bearish Mat Hold Candlestick Pattern?

Trading strategies focusing on trend reversal or breakdowns may be well-suited for trading the Bearish Mat Hold pattern.

How Does The Trading Volume Affect The Bearish Mat Hold Candlestick Pattern?

The trading volume can affect the reliability of the Bearish Mat Hold pattern as a bearish reversal signal. A high volume of trading activity during the pattern formation may increase its significance.

How Can Traders Use The Bearish Mat Hold Candlestick Pattern To Determine Entry And Exit Points?

Traders can use the Bearish Mat Hold pattern to identify potential entry points at the resistance level and exit points at the support level.

How Might The Risk Profile Of A Bearish Mat Hold Candlestick Pattern Trade Differ From Other Candlestick Patterns?

The risk profile of a Bearish Mat Hold pattern trade may differ from other candlestick patterns due to the specific market conditions and the trader’s risk management approach.

What Are Some Of The Most Popular Indicators Used To Complement The Bearish Mat Hold Candlestick Pattern?

Some popular indicators that may be used in conjunction with the Bearish Mat Hold pattern include the Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), and On Balance Volume (OBV).

How Can Traders Use Technical Analysis To Evaluate The Potential Of A Bearish Mat Hold Candlestick Pattern?

Technical analysis can be used to evaluate the potential of a Bearish Mat Hold pattern by considering the pattern’s formation in the context of the overall trend, support and resistance levels, and trading volume.

What Are The Key Tax Implications Associated With Trading The Bearish Mat Hold Candlestick Pattern?

The key tax implications of trading the Bearish Mat Hold pattern will depend on the trader’s specific tax jurisdiction and the nature of the trade. Traders should consult with a tax professional for guidance

What Type Of Trading Account Is Best For Trading The Bearish Mat Hold Candlestick Pattern?

A trading account that offers access to the markets and financial instruments relevant to the Bearish Mat Hold pattern and the trader’s strategy would be the most suitable for trading the pattern. This may include a standard brokerage account or a specialized options or futures trading account, depending on the trader’s needs and preferences.

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