The Big Belt

What is a Big Belt?

There are a few moments in life that eclipse all others. Some of them are obvious, and you anticipate them: the birth of your first child, your adventures at an exotic faraway land, meeting someone who will become one of the most important people in your life, and so forth. Other moments seem to come from nowhere, out of the blue, but they are often just as critical and just as important. The first time you realize you will become a profitable as a naked trader may be one such moment. The tricky thing about these surprising moments is this: You never know when they will occur, and when they do, it is important to seize them. These critical, beautiful moments come and go, but you must be ready for them at any time.

This next catalyst, the big belt, is much like a brilliant peak experience in life. A big belt is a very significant occurrence in the market. Big belts rarely occur, and when they do they will nearly always occur on a support and resistance zone. The big belt will nearly always occur on the very first day of the trading week, after the market has had some time to think about a fair price over the weekend.

Unfortunately, many traders are a bit too excited when the market starts trading again for a new week. Many traders are thinking about what happened the previous week. Because traders are thinking about the world events of the previous week, the market often makes some extreme jumps on the first trading day of the week. Unfortunately, this early excitement is often misplaced, and pushes the market to a place that is a bit too far.When this occurs a big belt will often appear on the chart. There are two types of big belts: bearish big belts and bullish big belts. Once you understand the basics of the bearish big belt, you can easily apply your knowledge to the bullish big belt, since the trade set-ups are simply opposites.

A bearish big belt will occur at a market high and a bullish big belt will occur at market low. In both cases the belts will print on a zone. In Figure 9.1 we see a bearish big belt on the AUD/USD daily chart.

FIGURE 9.1 This is a bearish big belt on the AUD/USD daily chart. The candlestick prints on an important zone, the bearish big belt opens higher than the previous candlestick, open is near the high, and the close is near the low.
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The defining characteristic of the bearish big belt is the jump in the market price. In forex, bearish big belts nearly always surface on the first trading day of the week. Themarket opens much higher than the closing price of the previous week and then steadily trades lower, eventually closing near the low of the candlestick. Thus, the candlestick has a beltlike appearance. The opening price is near the high and the close is near the low. Naturally, bearish belts will also stick out above recent price action. Notice that the bearish big belt prints on the 0.9335 zone.

This is a critical zone because the market reversed here after touching the zone four months prior. Bearish big belts will always have an opening price near the high of the candlestick, and the closing price will be near the low of the candlestick. A bearish big belt has an entry very similar to a bearish kangaroo tail or a bearish big shadow.

A sell stop is simply placed just below the low of the bearish big belt. Placing the entry here ensures that the market must make a new low before the trade is triggered. This will, of course, enable you to avoid many losing trades, particularly those signals that follow a rising market. If the market never falls to the entry price, the trade will not be triggered.

Bearish big belts often occur at critical turning points, when the market has become extremely excited. This excitement is translated into a bearish big belt; it is a signal that the market has gone up too far. If you take a look at the bearish big belts on your charts, you will see that, historically, the daily bearish big belts have an exceptionally high win rate.

Test this for yourself; scroll through the historical charts and record the market movement after big belts, or test them in a forex tester, or your chosen program for back testing. You may be surprised with the win rate of the big belt trading set-up. Although it is common to see bearish big belts on lower time frames, such as the one-hour chart and the four-hour chart, sticking to the daily charts only will enable you to maintain a high win rate when trading this set-up.

So, although it may be tempting to multiply your trades by taking big belts on a lower timeframe, it is probably a better idea to either stick to the daily charts for this naked trading set-up or be very selective with the trades that you decide to take on the lower timeframes.

FIGURE 9.2 Another bearish big belt on the GBP/USD daily chart. A profit target at the next zone captured 385 pips on this trade.
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As with many of the other naked trading set-ups, an easy way to exit your bearish big belt trade is to simply wait for the market to reach the very next zone (see Figure 9.2). This is often a simple way to capture a large chunk of the move. Again, remember that the bearish big belts often print at critical market highs, so they offer an excellent opportunity for you to take a bite out of a big move in the market.

The stop loss for the bearish big belt is placed above the high of the belt. If the market trades higher than the high of the bearish big belt, then, obviously, the belt has not identified a key turning point in themarket. Take a look at the bearish big belt trade in Figure 9.3.

FIGURE 9.3 This is the bearish big belt on the GBP/USD daily chart. Notice the sell stop is placed below the low of the belt candlestick and the stop loss is above the high. The profit target at the next zone captured 163 pips on this trade.
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The bearish big belt is an excellent trade set-up, you simply have to wait for them to occur. If you are watching only the major currency pairs (EUR/USD, USD/CHF, USD/JPY, GBP/USD) you may occasionally luck into a bearish big belt trade. But if you expand your scope, and look at many of the other currency pairs (NZD/JPY, EUR/CAD, GBP/CAD, etc) you obviously have a much better chance of catching one of these bearish big belt set-ups.

Back test the bearish big belt on your own to see how profitable and successful these trades may be for you. All you have to do to be ready for the daily bearish big belt is to watch the market after the close of the very first trading day of the week.

The other big belts are, of course, the bullish variety, bullish big belts are important catalysts that hint at the market moving higher. A bullish big belt will often print at an important market low on a zone. The bullish bigbelt candlestick has an opening price much lower than the closing price of the previous candlestick.

The bullish big belt will have an opening price down near the low for the candlestick, and the closing price will be up near the high of the candlestick. In Figure 9.4 a bullish big belt is on the EUR/CAD daily chart. This bullish big belt prints on the 1.3430 zone.

This is a critical zone because the market reversed here after touching the zone three months prior. The bullish big belts will always have an opening price near the low of the candlestick, and the closing price will be near the high of the candlestick.

FIGURE 9.4 A bullish big belt on the EUR/CAD daily chart. The candlestick prints in an important zone, the 1.3430 zone. Notice how the bullish big belt opens much lower than the close of the previous candlestick, the open is near the low, and the close is near the high.
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The bullish big belt on the EUR/CAD daily chart (Figure 9.4) is an excellent example because the bullish big belt daily candlestick prints on the important zone at 1.3430. The interesting thing about this particular bullish big belt is that the low of the candlestick is a bit lower than the opening price. This is not ideal, but the most important characteristic of the bullish big belt candlestick holds true in this example.

The closing price is very near the high price, and this is absolutely critical for the bullish big belt setup (just as it is critical for the bearish big belt set-up to have a close near the low of the candlestick). Take a look at the chart again in Figure 9.5, here you will see that the stop loss is down below the low of the bullish big belt and the buy stop is placed a few pips above the high of the bullish big belt candlestick, the trade is triggered only once the market trades higher than the bullish big belt.

FIGURE 9.5 The entry price for the bullish big belt on the EUR/CAD daily chart is a few pips above the high of the bullish big belt candlestick. The stop loss order trade is below the low of the bullish big-belt candlestick. The profit target is the very next zone at 1.3885, a profit of 313 pips.
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This trade easily achieved the profit target at the very next zone, the 1.3885 area for a profit of 313 pips.Although the bullish big belt trade is an excellent trade and many traders will find a high win percentage associated with this trade, there are losing trades, just as there are for all trading systems.

FIGURE 9.6 The weekly USD/CHF bullish belt has a stop loss below the low and the buy stop entry is above the high. The market does reach the next zone, but soon after quickly falls beyond the stop loss price.
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The next bullish big belt example is in Figure 9.6, this is a weekly USD/CHF chart. Note that the stop loss is placed below the low of the bullish big belt candlestick. The candlestick has good form, the open of the candlestick is down near the low of the candlestick, and the closing price is up near the high. The buy stop entry is placed a few pips above the high of the candlestick, and this entry price is easily triggered during the next candlestick, in fact, the market pushes all the way up to the very next zone.

However, the risk on this trade is 210 pips (from the buy stop to the stop loss), and the first zone is only 180 pips away. Therefore, some traders may be more comfortable with a profit target placed at the next zone at 1.2450, a full 425 pips away. This further profit target obviously allows for a much more favorable reward to risk ratio.

For now, it is important to note that although the market did go in the expected direction, it only went as high as the very next zone. Your win rate with the bullish big-shadow strategy may depend on how aggressive you are with your profit targets.