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

Playing Markets

Bearish counterattack line patterns are fairly rare but give a clear signal.

Since candlesticks are the basic building block of most technical analysis, the ability to recognize different candlestick patterns is a crucial trading skill.

First though, let’s start with a definition.

In this Guide to Bearish Counterattack Line Patterns, we’ll explain:

What They Mean
How To Recognize Them
Where They Fit
How To Trade Them
Similar Candlestick Patterns

What Is a Bearish Counterattack Line Pattern?

A bearish counterattack line pattern is a 2-candlestick formation that may signal a bearish reversal. It may appear during an uptrend and is made up of a large bullish candle followed by a large bearish candle that opens with a large gap up then moves lower, filling the gap to close near the first candle’s close.

It is a subtype of the counterattack lines pattern and the opposite of the bullish counterattack lines. It is similar to bearish in neck and bearish on neck patterns in that the closes of the two candles create a make-or-break price level.

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 Bearish 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. Selling pressure is likely to kick in if price stays below this level.

In trading terms:

During the first period, price continued the pre-existing uptrend.
The second period opens with a gap up but price moves back down, immediately filling the gap and ending with a similar close to the following period.

This sets the stage for bullish reversal, as the bulls may have overplayed their hand.

How To Recognize Bearish 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 bearish counterattack line pattern must:

Appear during an uptrend
Begin with a bullish long candle
End with a bearish long candle of similar size to the first candle
Have both candles’ closes at approximately the same price
Completely fill the gap by end of the second candle

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 candlestick patterns, such as the bearish in neck or bearish 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 Bearish Counterattack Lines Fit in the Chart Narrative

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

Bearish counterattack line patterns show that the bulls 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:

On the first day, bulls continued the uptrend by pushing price significantly higher. After the market closed, price continued to increase by approximately the same amount that it did during market hours, creating a large gap. By the time the market opened on the second day, buyers were ready to take profits, allowing the bears to push price back down to the prior day’s close by the final bell.

From here, the bears feel confident that control is now in their hands.

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

The question traders need to ask themselves is, “Are the bears justified in their optimism or was that gap just a little too ambitious for the time being?”

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 bearish 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 Bearish Counterattack Line Patterns

Bearish reversal points are great places to exit longs or enter shorts.

Bearish counterattack line patterns serve as easy-to-spot signs of potential bearish reversals—and may even lead to longer-term tops 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 bearish counterattack lines, be on the lookout for it on the second candle (or shortly thereafter).
Price Formations – Bearish counterattack lines that form near important resistance levels are usually more likely to lead to sustained reversals. They may also reinforce the strength of such levels.
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 (whether bullish or bearish). 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 bearish counterattack line is but one of many candlestick patterns.

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

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:

Bearish counterattack lines are a type of candlestick pattern that signals a potential bearish 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.