Bearish Counterattack Candlestick Pattern: Candlestick patterns are a part of technical analysis preferred by traders to comprehend and predict the future price movement in securities. Among various patterns, the Bearish Counterattack Candlestick Pattern is a two-candlestick formation that helps traders spot potential reversals in the security.

In this article, we will discuss about the Bearish Counterattack Candlestick Pattern with its meaning, and how to set up a trade with the pattern formation.

Bearish Counterattack Candlestick Pattern – Definition

The Bearish Counterattack Candlestick Pattern is a two-candlestick pattern indicating potential trend reversals. This two-candlestick pattern can appear in an uptrend or a downtrend. 

In a bearish counterattack, if the current market price is in an uptrend and the next candlestick opens with a gap up and manages to close at the previous candle’s close, then it is identified as a Bearish Counterattack Candlestick Pattern.

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The formation of this pattern is an indication of trend reversal. So, after the formation of a bearish counterattack, the price may see a downward movement. Here the closing price of the second candle is at the same price or slightly lower than the first candle’s close price.

How to Identify a Bearish Counterattack Candlestick Pattern?

In a Bearish Counterattack Candlestick Pattern, the first candle must be bullish (green candle). The second candle must open with a gap up and close near the same close price as the first candle. So the second candle must be bearish (red candle). It is preferable for a bearish counterattack to be formed in an uptrend.

Here, the second candle is generally called the counterattack candle. Once this pattern is formed the price of the stock may see a downward trend.

Bearish Counterattack Candlestick Pattern – Psychology

When the price of a stock is in an uptrend, the first candle is bullish (green candle) because of the buying pressure. The second candle then opens with a gap up in the price due to an increase in the buying pressure but the price starts declining and closes near the same price as the first candle’s close price. 

This is due to a reduction in the buying pressure and selling pressure overtaking the buying pressure. The formation of this pattern invokes feelings of fear and anxiety in the investors. Due to this we generally see an increase in selling pressure during the next few candlestick trading periods.

Bearish Counterattack Candlestick Pattern – Trading Ideas

The best scenario for this pattern to appear is after an uptrend. After the appearance of this pattern, one should follow the following steps to enter a trade in security: 

  • Entry – The proper entry point would be to take a short position right below the close or low price of the bearish candle (red candle). But if you want to take a safer entry, then take a short position once the price goes below the first candle’s opening price(green candle).
  • Profit Target – You can exit the trade when the price of the security reaches near the immediate support zone. Once this level is reached, you can also book partial profits in the trade and hold on to the remaining position until the next support level.
  • Stop Loss – The stop loss should be placed right above the bearish candle’s (red candle) high price.

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Bearish Counterattack Candlestick Pattern – Example

In the above one-day chart of NIFTY BANK, we can see the formation of the bearish counterattack candlestick pattern after an uptrend. As discussed in the article, the price went into a downward trend after its formation.

When the bearish counterattack candlestick pattern was formed, traders could’ve taken a short position at Rs. 28257.35 and the stop loss was at Rs. 26406

Key takeaways of a Bearish counterattack pattern

Composition: In the bearish counterattack candlestick pattern, the first candlestick is a bullish candlestick and the second candlestick is a bearish candlestick that opened with a gap up and closed at the previous candlestick’s close price. 

Indication: It indicates a potential trend reversal as the buying pressure is weakening and the sellers are trying to overcome the buying pressure.

Volume: A bearish counterattack candlestick pattern coupled with high bearish volume is a strong indication of a potential trend reversal.

Trend: The best scenario for this pattern to appear is in an uptrend as the likelihood of the bearish reversal increases.

Read more: Bullish Counterattack Candlestick Pattern

Conclusion

Although the bearish counterattack candlestick pattern is not frequently observed in the market, traders should still be aware of what this pattern indicates and how to trade it. This pattern can provide an early indication of a trend reversal, but it is necessary to combine it with other indicators to confirm the trend reversal before entering a trade.

Additionally, it is recommended that traders place appropriate stop-loss orders to minimize losses in case the trade goes against their analysis. What are your views about this candlestick pattern, please let us know in the comment section.

Written by Praneeth Kadagi

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