When it comes to technical analysis and candlestick patterns, there’s hardly any dearth of reversal indicators. One such trend reversal indicator that many traders use to take a positional trade is the counterattack candlestick pattern. Here’s everything that you need to know about this unique technical indicator.
Counterattack candlestick pattern – an overview
Also known as the counterattack lines candlestick pattern, this indicator involves two candlesticks that move in opposite directions. It is useful for identifying trend reversals, and it can occur either during an uptrend or during a downtrend. When it occurs during a downtrend, the indicator is known as a bullish counterattack pattern. Similarly, when it occurs during an uptrend, the indicator is termed as a bearish counterattack pattern.
Counterattack candlestick pattern – an example
Understanding the pattern and its significance becomes much easier when you see it in action. So, let’s take a look. Here’s what the bullish counterattack pattern looks like.
Take a moment to observe this figure. The bearish candle is coloured in black, whereas the bullish candle is coloured in white. Here, you can see that the prices are on a downtrend. The bears have a good grip on the market and are consistently pushing the prices down. The first candle coloured in black is evidence of this fact. In keeping with the high selling pressure of the trend, the white candle forms a ‘gap down’ and continues to fall till it hits the session’s lowest point. However, at this juncture, the bears lose steam and the bulls flood the market and lift up the price significantly. Thanks to this strong demand from the bulls, the session ends positively at around the point of the previous day’s close.
In this candlestick chart, you can see that the prices are on an uptrend. The bulls have a strong presence in the market and are consistently driving the prices upward. The string of candles coloured in white is evidence of this fact. In keeping with the high demand, the first black candle opens with a ‘gap up’ expecting the price to rise further. However, at this point, the bulls lose steam and give way to the entry of bears. The sellers then flood the market and drive down the price significantly. Due to this intense selling pressure from the bears, the session ends negatively at around the point of the previous day’s close.
How to use the counterattack candlestick pattern?
Spotting the pattern is one thing. Entering into a trade using the identified pattern is a whole other ball game. Therefore, here are some key pointers that you should keep in mind before entering into a trade based on the counterattack lines candlestick pattern.
– Firstly, look out for a hard trend. It can either be a bullish trend or a bearish trend.
– Once you’ve identified the trend, look out for a candle that either opens with a ‘gap up’ or ‘gap down’. The openings should be in line with the current trend.
– Observe the movement of this candle. The candle’s movement should be in a direction that’s opposite to the prevailing trend.
– Once that condition is satisfied, ensure that the candle that’s moving in the opposite direction closes near about the point of the previous day’s close.
– A pattern can be called a counterattack lines candlestick only if it satisfies all the above conditions.
– Once the pattern is identified accurately, it is advisable to wait for a confirmation candle before taking up a position. For instance, in the event of a bullish counterattack pattern, you should consider entering into a trade only if the candle that appears after the pattern is bullish. Otherwise, the bullish reversal is said to have failed.
See how the candle that appears after the bearish counterattack candlestick pattern is also bearish? This candle essentially confirms the trend reversal and should ideally be the point of entry.
Since the counterattack lines candlestick pattern is quite specific and occurs rarely, it is advisable to combine it with other technical indicators before you take a trading decision. This way, you can minimise the chances of your trade taking an unexpected turn.