Bearish Mat Hold

 



Shape:
The bearish mat hold is a bearish continuation candlestick pattern that typically forms during a downtrend.
It consists of five candles: a long bearish candle, three smaller bullish or indecisive candles that remain within the range of the first bearish candle, and a final long bearish candle that closes below the low of the first candle.
This pattern indicates a brief consolidation or minor pullback within a downtrend before the continuation of the bearish movement.

Success Rate:
Historically, the bearish mat hold pattern has a relatively high success rate, especially when it appears in a strong downtrend.
Success rates can vary, but many studies suggest that this pattern has a success rate of around 60-70% in achieving its expected bearish continuation.

Sell:
Enter a sell position when the price closes below the low of the first bearish candle, confirming the pattern.
The confirmation candle should ideally be accompanied by increased volume.

Take Profit (TP):
Measure the height of the first bearish candle and project this distance downwards from the closing price of the fifth candle to set the initial take profit target.
Example: If the height of the first bearish candle is Tk.5 and the closing price of the fifth candle is Tk.50, the target would be Tk.45.

Stop Loss (SL):
Place the stop loss slightly above the high of the first bearish candle.
This helps limit potential losses if the pattern fails and the price reverses.

Buy:
Consider buying only if the price fails to continue downwards and instead rises above the high of the first bearish candle.
Also, consider buying if the price shows signs of reversal at strong support levels.

Profit Trailing:
Use a trailing stop to lock in profits as the price continues to move in your favor.
Adjust the stop loss level downwards as the price falls, keeping it a set distance (e.g., a percentage or taka amount) above the current price.

Lot Size:
Determine the lot size based on your risk tolerance and account size.
Ensure that the potential loss (difference between entry price and stop loss) does not exceed a predetermined percentage of your account balance (e.g., 1-2%).

Risk-to-Reward Ratio:
Aim for a favorable risk-to-reward ratio (e.g., 1:2 or higher), where the potential reward is at least twice the potential risk.

Leverage:
Use leverage cautiously. While leverage can amplify gains, it also increases potential losses. Ensure you have a clear understanding of how leverage works and its impact on your trades.

Other Conditions:
Confirm the pattern with increased volume, indicating strong selling interest.
Monitor overall market conditions and sentiment to ensure alignment with the bearish outlook.

Caution:
False patterns can occur, leading to potential losses. Always wait for confirmation before entering a trade.
Market volatility and external factors can influence the pattern's reliability.
Avoid trading the bearish mat hold pattern in a weak or bullish market, as the success rate may decrease.

Pros and Cons of the Bearish Mat Hold Pattern

Pros:

Bearish Continuation Signal:
The bearish mat hold pattern typically forms in downtrends and signals a continuation of the bearish move, aligning with the broader market trend.

Clear Structure:
The pattern's structure is well-defined, making it relatively easy to identify and trade.

Higher Success Rate:
The pattern has a relatively high success rate, especially when it appears in a strong downtrend and is confirmed by volume.

Clear Entry and Exit Points:
The pattern provides clear levels for entry (breakout below the first bearish candle) and exit (stop loss above the first bearish candle), facilitating trade planning.

Cons:

False Patterns:
Like any pattern, the bearish mat hold can sometimes fail, leading to potential losses if not managed properly.

Volume Requirement:
Successful patterns often require a significant increase in volume. If the breakout occurs on low volume, it might be less reliable.

Market Conditions Dependency:
The pattern's effectiveness can diminish in volatile or bullish market conditions. It is most reliable in a stable or bearish market environment.

Short-Term Nature:
The bearish mat hold pattern is relatively short-term, meaning traders need to act quickly to capitalize on the potential continuation move.

Trading Psychology of Bearish Mat Hold

Formation:

  • Initial Downtrend: The pattern typically forms during an existing downtrend. Traders are pessimistic, and selling pressure is strong.

  • Temporary Pullback: The three smaller bullish or indecisive candles represent a temporary pause or minor retracement within the downtrend. This indicates brief profit-taking or hesitation among traders.

  • Bearish Confidence: The final bearish candle suggests that sellers have regained control and are confident in the continuation of the downtrend.

Market Sentiment:

  • Sellers' Confidence: As the pattern forms, sellers become more confident that the downtrend will continue. The final bearish candle reinforces this sentiment.

  • Buyers' Weakness: Buyers attempt to push the price up during the three smaller candles, but their efforts are weak and unable to reverse the overall downtrend.

Breakout Psychology:

  • Anticipation: Traders who recognize the bearish mat hold pattern anticipate a continuation of the downtrend and prepare to enter sell positions upon confirmation.

  • Volume Increase: A significant increase in trading volume during the final bearish candle reassures traders that the pattern is legitimate.

  • FOMO (Fear of Missing Out): As the breakout occurs, more traders rush to sell, fearing they might miss out on the price drop. This further drives the price down.

Post-Breakout:

  • Validation: Successful breakout validation (price closing below the low of the first bearish candle with increased volume) reassures traders that the pattern is legitimate, leading to sustained selling interest.

  • Profit-Taking: Some traders may take profits near the target price derived from the pattern's height. However, the overall sentiment remains bearish unless significant support is encountered.

  • Trailing Stops: Experienced traders use trailing stops to lock in profits while allowing for further downside potential. This approach balances profit-taking with the possibility of continued decline.

Failure and Risk Management:

  • False Patterns: Not all patterns succeed. False breakouts can occur, leading to trader frustration and potential losses. Proper risk management, such as stop-loss orders, is essential.

  • Reevaluation: If the pattern fails, traders reassess their strategy. They might look for other patterns or signals to guide their next moves.

General Tips for Managing Trading Psychology:

  • Patience: Wait for the pattern confirmation before entering a trade to avoid false signals.

  • Discipline: Stick to your trading plan, including predefined entry, exit, and stop-loss levels.

  • Emotional Control: Manage emotions like FOMO and fear by focusing on your strategy and risk management principles.

  • Continuous Learning: Stay informed about market conditions and continuously improve your technical analysis skills.

Understanding the psychology behind the bearish mat hold pattern can help you make more informed trading decisions and better anticipate market movements.