BULLISH STOP LOSS
Definition
The Bullish Stop-Loss Pattern is not a standard candlestick pattern. It serves as the stop-loss complement for all confirmed bearish patterns. The conditions for activating the Bullish Stop-Loss are two consecutive highs or a close above the stop-loss level of a recently confirmed bearish pattern.
Recognition Criteria
1. A bearish pattern is detected, and its confirmation and stop-loss levels are established.
2. The pattern, then, is confirmed and a SELL or SHORT signal is issued.
3. Prices either close above the stop-loss level once or test highs above the stop-loss level for two consecutive days.
4. This triggers the Bullish stop-loss.
Pattern Requirements and Flexibility
All bearish candlesticks are accompanied by a specific stop-loss level, which becomes active when the pattern is confirmed. A bearish confirmation may consequently lead to a bearish signal such as a SELL or SHORT signal. Following the bearish signal, if prices rise instead of falling and either close or make two consecutive daily highs above the stop-loss level, while no bullish pattern is detected, then the stop-loss is triggered. Once triggered, the stop-loss level of the recently confirmed bearish pattern acts as the confirmation level of a bullish pattern. The system then seeks a bullish confirmation to issue a BUY signal. Prices must cross above the stop-loss level for the bullish confirmation of the triggered stop-loss.
Trader’s Behavior
In the unpredictable environment of the stock market, it is difficult to assert that all bearish bets will be successful. However, most bearish bets based on confirmed candlestick patterns tend to be profitable. Some candlestick patterns may result in false trades, known as bear traps. This is where the stop-loss comes into play, acting as a safety mechanism to minimize potentially devastating losses for bearish traders. According to statistics, trades based on Bullish stop-loss confirmations are as successful as other candlestick pattern-based signals. If confirmed, they should never be ignored.
Buy/Stop-Loss Levels
The confirmation level is defined as the stop loss level of the recently confirmed bearish candlestick pattern. Prices should cross above this level for confirmation of the Bullish stop loss.