Counterattack Line Candlestick Patterns Explained: What They Are & How To Trade Them

 

What Is a Counterattack Line Pattern?

A counterattack line pattern is a 2-candlestick formation that may signal a reversal.  It is made up of a long candle moving in the direction of current trend followed by a second candle that opens with a gap that then moves in the opposite direction, filling the gap to close near the first candle’s close.

The counterattack lines candlestick pattern has both bullish and bearish variations.  Either way, the closes of the two candles create a make-or-break price level (similar to the “neckline” of on neck and in neck patterns).

Of course, no candlestick pattern guarantees a particular outcome.  Instead, they offer clues as to what is going on in the market.

So the question is, what does a counterattack line really tell you?

What Counterattack Line Patterns Mean

Unlike the vast majority of candlestick patterns, the name describes it very well.

And unlike some, English speakers do not use the Japanese name.  The term “counterattack line” reflects the nature of the pattern, a proverbial line in the sand.  Counter-trend pressure is likely to kick in above or below this level (depending on whether it is bullish or bearish).

In trading terms:

• During the first period, the price drove in the direction of trend.
• The second period opens with a gap but price moves against trend, immediately filling the gap, ending with a similar close to the following period.

This sets the stage for reversal, as the leading side may have overplayed their hand.

How To Recognize Counterattack Line Candlestick Patterns

Traders are attracted to patterns partly because they are easy to spot.

However, it’s also easy to see things on the charts that aren’t truly there (or anticipate events that never come to fruition).  That’s one of the reasons why waiting for confirmation is so important.

Technically, a counterattack line pattern must:

• Begin with a long candle moving with trend
• End with a candle of similar size moving against trend
• Completely fill the gap after the first period

In practicality though, many traders will make various exceptions.

• The candles don’t necessarily have to be long candles, as long as they are the same size.
• The candles don’t necessarily have to be the same size, as long as they are long candles.
• It can take two candles to fill the gap, as long as the combined length of the second and third candles equals the length of the first.

Depending on who you ask, any of these standards may be more or less important.  The only real non-negotiables are the direction of the candles and the immediate gap fill.  Moreover, some of these variations may be more properly classified as other reversal candlestick patterns, such as the in neck or on neck.

Remember, identifying the reversal itself is more important than labeling the formation.  That’s not to say these standards are completely unimportant (as we’ll touch on shortly).  It’s just to say that the implications are more important than the criteria.

In other words, you need to put it into context.

Where Counterattack Lines Fit in the Chart Narrative

The markets are often characterized as a battle between the bulls and the bears.

Counterattack line patterns show that one side attempted to press their advantage on candle one, continued to do so between candles, but then lost all momentum by the close of candle two.

On the chart, it looks like a turning point.

It might happen like this on a daily time frame:

After a strongly trending day, traders awoke the next day to a large price gap.  Those on the side of trend took profits, allowing the gap to fill steadily throughout the day until it was completely erased.

In the short-term, it amounts to the drawing of battle lines.

The question traders need to ask themselves is, “Will this lead to a sustained reversal or was that gap just too ambitious for now?”

To answer that question, you’ll need more than just an understanding of Japanese candlesticks and candlestick patterns.  You’ll want to analyze both within the context of greater chart patterns as well as trend and price levels.  You’ll also want to make use of your own chart markup and indicators.

Analyze the history of your preferred asset(s) with respect to counterattack line patterns and apply it to your own trading style.

Now, you can test (and/or stretch) the criteria we mentioned above to find the most tradeable opportunities.  For example, you may find that counterattack lines with long candles play out more reliably than those with short candles.  Or, you may find the opposite.

Here is where the story in the charts begins to come into focus.

This is what we call technical analysis.

How To Trade Counterattack Line Patterns

Reversal points are great places to enter or exit trades.

Counterattack line patterns serve as easy-to-spot signs of potential reversals—and may even lead to longer-term tops or bottoms when found on higher time frames.

Generally, you can put more weight into multi-stick patterns than single candles.  They give you more information over a longer amount of time.  Still, it is considered unwise to trade based on candlestick patterns alone.  They rarely have extremely high hit rates by themselves.

You need additional points of confluence to shift the probabilities in your favor.

Some of the more important ones include:

• Volume – Reversals are often accompanied by elevated trading volume.  For counterattack lines, be on the lookout for it on the second candle (or shortly thereafter).
• Price Formations – Reversal patterns like the counterattack line often form near important price levels or trend lines, leading to a bounce at support or rejection at resistance.
• Oscillator Shift – Oscillating indicators like the RSI or stochastics are commonly used to identify reversals by analyzing slope, percentile, and/or divergence.

The fewer such factors corroborating the reversal, the less confident you can be about it.

It would be difficult to form a comprehensive trading strategy around counterattack line patterns.  There simply isn’t enough there to develop a strong edge.  Even with a great understanding of trading math, orders, psychology, risk management, options, and automation, you’d still have a hard time.

You’re much better off building your strategy around other tools then using reversal patterns as an additional point of confirmation.

Patterns like the counterattack line are much better idea givers than trade makers.

Other Candlestick Pattern Types

The counterattack line is but one of many candlestick patterns.

You’d be wise to get familiar with all of the other ones too.

• Abandoned Baby
• Breakaway
• Doji Star
• Engulfing
• Harami
• Harami Cross
• In Neck
• Kicking
• Ladder
• Last Engulfing
• Mat Hold
• Matching
• Meeting Lines
• On Neck
• Separating Lines
• Star
• Stomach
• Tasuki Gap
• Three Inside
• Three Methods
• Three Outside
• Tweezer
• Window

Sure, there are quite a few of them.  But don’t let that intimidate you.

It’s unnecessary to memorize all the names and criteria for every pattern.  What’s more important is to learn the principles of price action and technical analysis.

In fact, you’re free to forget all of the names and specifications as long as you can look at a group of candlesticks and understand what they are trying to tell you.

Takeaways

To review:

Counterattack lines are a type of candlestick pattern that signals a potential reversal.  While not a guarantee, their appearance may indicate that market conditions are changing.  Thus, they can help you find winning trades.

Of course, there are other candlestick patterns that you should learn about.  And even so, the ability to recognize patterns is not enough to trade successfully on its own.

Nonetheless, you’ve now added one more tool to your toolkit.

Have questions or more information to add?  Contribute to the conversation in the comments below!  Or, if you know someone who could benefit from this post, share it with them.  You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.