The financial markets we trade in every day are like the center of a complex dance. The price sometimes goes up, sometimes down, and we try to read the future price movements correctly at this rhythm time. While trying to predict the future from past movements, technical analysis is one of the price analysis methods that every trader should know. The tools we need most in technical analysis are the patterns based on Japanese candles. These patterns are represented by candlesticks, which are used in the graphical representation of prices. One of them is a type of pattern called "Counter Attack Lines" that can indicate trend changes. We will examine the Counter Attack Lines candlestick pattern in more detail within this article, covering its variations and how to trade it in the financial markets.
- Topic: Counter Attack Lines
- Type: two-way
- Trend direction: Reversal
What is the Counterattack Lines Candlestick Pattern?
The Counterattack Lines candlestick pattern is a two-candle reversal pattern. It shows that buyers or sellers are fighting back after a strong move in the opposite direction. As a rule, it forms at the end of a bullish trend or a bearish trend.
There are two different
types of these candlestick patterns:
The Bullish and Bearish Counterattack Lines
- Bearish Counter Attack Lines Candlestick
- Bullish Counter Attack Lines Candlestick
Counter Attack Lines are like a compass that tells the story of prices and shows the possible trend changes in the market. This pattern appears frequently in stock and forex markets. For better results, it should occur near support or resistance levels. The Counterattack Lines pattern effectively indicates quick market reversals.
Why is it called that?
The name Counterattack Lines comes from military terminology. Imagine an army advancing, only to face a fierce counterattack from the enemy. This mirrors the struggle between buyers and sellers. The first candle shows one side pushing strongly, making everyone believe the trend will continue. But the close changes everything. The second candle acts like a counterattack. It opens in the same direction but pulls back before closing.
Japanese candlestick readers chose this name to express that
sudden shift. It highlights how the second candle "attacks" the gains made by
the first one. Sellers strike back at the end of a bullish trend by pushing
prices down, while buyers counterattack at the end of a bearish trend by
driving prices higher. When traders spot this pattern on the chart, they
immediately recognize the battle it represents.
Bearish Counter Attack Lines Candlestick Pattern
The Bearish Counterattack Lines
candlestick pattern occurs in a rising market trend. It emerges when the green
(rising) candle of the first day is partially or fully retraced by a red
(falling) candle on the second day. This situation may indicate a possible halt
in the upward momentum or the beginning of a shift towards a downward trend.
The formation of this pattern is as follows:
- First Candle: In an uptrend market, the first candle is usually a green (white) candle, indicating an uptrend. This candle usually shows buying pressure and that prices are trending higher.
- Second Candle: The second candle is a red (black) candle, indicating a downtrend. This candle opens at a new high and closes at the same level or near the level of the first candle. It may also retrace some of the previous green candle. This shows that the sellers in the market are trying to balance out the previous rise.
The Bearish Counterattack Lines is made up of two candles that indicate a bearish reversal. These candles can be any type, including Marubozu or other candlestick
forms. This pattern can occur not only at the end of an uptrend but also in the
middle part of an upward trend. Such patterns are found as striking
candlesticks in both the currency and stock markets.
How to Trade the Bearish Counterattack Lines
The Bearish Counterattack Lines candlestick pattern is often interpreted as a sign of a trend change. When observed in the market, it is thought to signal a reversal of the prevailing uptrend. However, it could also represent a correction within the current trend. It may signal a possible weakness in the uptrend, indicating an increase in selling pressure, which signifies a pullback within the rising trend.
When the pattern is completed, we
can consider opening a short position. Of course, this should be confirmed by
other technical tools. We can place the stop loss order slightly above the
highest price level reached by the second candlestick (the red candlestick).
Take a look at the live trading example on the daily chart of the GOLD
commodity CFD below:
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| Bearish Counter Attack Lines in GOLD Chart |
The Bearish Counter Attack Lines are more reliable if they
occur near a resistance level. The larger the candles, the more effective the
counter attack line is.
⚠ It is important to keep in mind that Bearish Counter Attack Lines may not always give accurate signals. Risks are always present in financial markets, such as Forex. This pattern should be used carefully by analyzing it in conjunction with other technical indicators.
Bullish Counter Attack Lines Candlestick Pattern
The Bullish Counterattack Lines pattern shows up when the market is falling. On the second day, a green candle pushes back against the previous red one, taking back some or all of its losses. It's often a sign that the downtrend is slowing and buyers are starting to take control. The formation of the Bullish Counterattack Lines is as follows:
- First Candle: In a downtrend market, the first candle is typically a red (down) candle, indicating a downtrend. Prices are normally moving lower.
- Second Candle: The second candle is a green (white) candle, indicating an uptrend. This candle covers some of the previous red candle. This shows that prices may be recovering from the previous decline. The green candle opens at a new low, but closes at the same level or near the close of the red candle.
The Bullish Counterattack Lines pattern consists of two candles and typically forms in a declining market. These candles can be Marubozu or other common types. When it appears amid heavy selling pressure, the pattern often suggests that bearish momentum is fading and a bullish reversal could be developing.
How to Trade the Bullish Counterattack Lines
The Bullish Counterattack Lines is a
technical indicator that can be used to identify buying opportunities. This
pattern, when seen in the middle or at the end of a downtrend, indicates that
buyers are beginning to surpass sellers and that prices may start to rise.
After the completion of the pattern, we can use it as a signal to open a long
position. We may place the stop loss order slightly below the lowest price
level reached by the second candlestick (the green candlestick). Take a look at
the live trading example on the daily chart of the SILVER commodity CFD below:
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| Bullish Counterattack Lines in SILVER chart |
The Bullish Counter Attack Lines are more reliable and
effective trades if they occur near a support level and the candles are larger.
⚠ Remember, trading in financial markets is risky. Bullish Counter Attack Lines, like any Japanese candlestick pattern, can produce false signals. For this reason, this pattern should not be used alone when trading in the Forex market. More solid decisions can be made by evaluating it in conjunction with other technical analysis tools and indicators.