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