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What is the Mat Hold Pattern?

The Mat Hold Pattern

The Mat Hold candlestick pattern is a rare continuation pattern that is similar to the Three Methods pattern and the Upside Gap Two Crows pattern. It is also similar to the Flag pattern found in Western bar chart patterns.

As it is a trend continuation pattern, it must occur in an already established trend, and indicates that the current trend could be expected to continue. The Mat Hold pattern can be a bullish or a bearish continuation pattern, depending on the direction of the trend that it occurs in.

The Mat Hold Formation

The Mat Hold pattern should appear in an established trend. It starts with a relatively large candlestick that is supportive of the current trend. This is followed by a series of three smaller candlesticks that move against the trend in a consolidation or correction phase. The first of these three countertrend candlesticks opens with a gap or window in the direction of the trend but turns back to close near the close of the previous candlestick. This is followed by a candlestick that closes the window (fills the gap) and penetrates into the real body of the first candlestick in the pattern. The fourth candlestick in the pattern closes even further against the trend but does not penetrate below the midpoint of the first candlestick in the pattern. The last candlestick in the pattern re-affirms the current trend as it negates all of the gains of the previous three candlesticks.

The Bullish Mat Hold Formation

The formation of the bullish Mat Hold pattern starts with a large bullish candlestick that is light in color and confirms the current uptrend. This is followed by a series of three smaller bearish candlesticks that move against the trend in a consolidation phase. The second candlestick in the pattern, which is the first of the three bearish candlesticks, has a gap or window on open, i.e., it gaps up to open above the real body of the previous candlestick, but turns back to close near the close of the previous candlestick. This is followed by another bearish candlestick that closes the window (fills the gap) and penetrates into the real body of the first candlestick in the pattern. The following candlestick is also bearish and closes even lower that it predecessor but does not penetrate below the midpoint of the first bullish candlestick in the pattern. The last candlestick in the pattern re-affirms the uptrend as it negates all of the three bearish candlesticks by closing higher than all of them or at least higher than the previous two candlesticks.

What the Bullish Mat Hold Pattern tells us

The bullish Mat Hold pattern occurs in an established uptrend that has become a bit over saturated and needs to rest in order to become reinvigorated again. This is natural phenomenon of a trending market and is referred to as consolidation in an uptrend. The three bearish candlesticks in the pattern marks a minor pull back that represents the consolidation phase in the uptrend as some traders take profit. Where the three bearish candlesticks close in relation to the first candlestick is important. None of them should penetrate and close below the midpoint of the first candlestick otherwise the pull-back may be too strong and could become more than just a consolidation. The last candlestick in the pattern indicates that the consolidation phase is over and re-affirms the uptrend as it is a large bullish candlestick that closes above at least two of the three previous bearish candlesticks.

Trading the Bullish Mat Hold Pattern

The bullish Mat Hold pattern is a bullish continuation pattern that appears in an uptrend and suggests that the uptrend is more likely to continue than reverse. Traders that have existing long positions would want to hold their long positions, and possibly add to it. Traders that missed earlier opportunities to enter the market could use the bullish Mat Hold pattern to enter the market. If the last candlestick in the bullish Mat Hold pattern has the highest close price in the pattern, traders could enter a long position by placing buy orders on the open of the next candlestick. If the last candlestick in the pattern is not the highest high of the pattern, the trader should wait for confirmation of the pattern first, in the form of a close above the high of the pattern. A protective stop order could be placed below the lowest low of the last two candlesticks in the pattern. If the protective stop-loss is too far from the entry to provide a favorable risk/reward ratio, the trader could wait for a possible retracement back towards the low of the last two candlesticks in the Mat Hold pattern. This would place the entry much closer to the protective stop and would reduce the capital at risk on the trade, though there is no guarantee that a retracement will take place.

The bullish Mat Hold pattern does not provide a clear profit target; therefore, other trading mechanisms or methods, such as a previous support or resistance area, a measured moved defined by an acceptable risk/reward ratio, a key Fibonacci extension level, the appearance of a bearish candlestick formation, or a simple trailing stop.

The bullish Mat Hold pattern becomes more reliable when it appears at a lower trend line or a support line. A bullish Mat Hold pattern that forms at or near a lower trendline or a support line can be used in anticipation that the test of the trendline or support line will hold. As a result, the price should be expected to climb, giving greater impetus to the pattern.

The Bearish Mat Hold Formation

The bearish version of the Mat Hold pattern is the opposite of its bullish counterpart. It occurs in a downtrend and begins with a large, bearish candlestick that confirms the current downtrend. This is followed by three smaller bullish candlesticks that are light in color. The last candlestick in the pattern is another large candlestick that is dark in color and confirms the downtrend. As is the case with the bullish Mat Hold pattern, the second candlestick in the pattern must gap down to form a falling window on open, only to close higher or against the trend. It, and the other two bullish candlesticks, should not move above the midpoint of the real body of the first candlestick in the pattern.

What the Bearish Mat Hold Pattern tells us

As with the bullish Mat Hold pattern, the second, third and fourth candlesticks in a bearish Mat Hold represent a resting phase in an existing downtrend that has become a little over saturated. In a downtrend, this phase is called a correction and occurs as some traders close their short positions to take profit. In the bearish Mat Hold pattern, this is a minor correction, after which the market could be expected to continue to moves down in the direction of the prevailing trend.

Trading the Bearish Mat Hold Pattern

The bearish version of the Mat Hold pattern is a continuation pattern that appears in a downtrend and suggests that the trend will probably continue after the pattern has completed. Traders that have existing short positions would want to hold on their short positions, and possibly add to it. For traders that missed earlier opportunities to enter the market, the bearish Mat Hold pattern represents an opportunity to enter the market. If the last candlestick in the bearish Mat Hold pattern has the lowest close price in the pattern, traders could enter a short position by placing sell orders on the open of the candlestick that follows the Mat Hold pattern. If the last candlestick in the pattern is not the lowest low, the trader should wait for confirmation of the pattern in the form of a close below the low of the pattern. A protective stop order could be placed above the highest high of the last two candlesticks in the pattern. If the protective stop-loss is too far from the entry to provide a favorable risk/reward ratio, the trader could wait for a possible pull-back towards the high of the last two candlesticks in the Mat Hold pattern. This would place the entry much closer to the protective stop and would reduce the capital at risk on the trade, though there is no guarantee that a retracement will take place.

The bearish Mat Hold pattern also does not provide a clear profit target; therefore, other trading mechanisms or methods, such as a previous support or resistance area, a measured moved defined by an acceptable risk/reward ratio, a key Fibonacci extension level, the appearance of a bullish candlestick formation, or a simple trailing stop.

The bearish Mat Hold pattern becomes more reliable when it appears at an upper trend line or a resistance line. A bearish Mat Hold pattern that forms at or near an upper trendline or a resistance line can be used in anticipation that the test of the trendline or resistance line will hold. As a result, the price should be expected to bounce off (down) the trendline or resistance line, giving greater impetus to the bearish pattern.