Bullish Counterattack Candlestick Pattern – Trading Strategies And More

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

In this article, we will discuss the bullish counterattack candlestick pattern with its meaning, types, and how to set up a trade with this pattern.

Bullish Counterattack Candlestick Pattern

The Bullish 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 bullish counterattack candlestick pattern, if the current market price is in a downtrend and the next candlestick opens with a gap down and manages to close at the previous candle’s close, then it is identified as a bullish counterattack. 

This indicates that the bearish trend may turn bullish. Here the closing price of both candles should be the same. But if there is a small difference in the closing prices, it can still be considered as a bullish counterattack pattern.

What a bullish counterattack Candlestick pattern!

In a bullish counterattack candlestick pattern, the first candle must be bearish (red candle). The second candle must be a bullish candle (green candle) that opened with a gap down and its closing price must be almost the same as the previous candle’s closing price. This pattern is preferable to appear after a downtrend.

Here, the second candle is called a bullish counterattack candlestick pattern and when these two candlesticks are formed, the trend may be reversed.

Bullish Counterattack Candlestick Pattern – Psychology 

When the price is in a downtrend, the price opens with a gap due to the high selling pressure in the security. But after the gap is down, the price moves up as sellers fail to maintain the pressure. As the selling pressure is weakening, the buyers suddenly enter the security and push the price higher. Hence the candlestick closes higher than the open price. 

This indicates that the selling pressure is weakening and the buyers are trying to overcome the selling pressure and the price might move upwards.

During the appearance of the counterattack pattern, it is preferable to be accompanied by large buying volumes as it adds conviction to the strength of the buyers in the market.

Bullish Counterattack Candlestick Pattern – Trading Strategies

The best scenario for this pattern to appear is after a downtrend. 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 long position right above the close or high price of the bullish candlestick (green candlestick). But if you want to take a safer entry, then take a long position once the price goes above the first candlestick’s opening price(red candlestick).

• Profit Target– You can exit the trade when the price of the security reaches near the immediate resistance 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 resistance level.

• Stop loss– The stop loss should be placed right below the bullish candlestick’s (green candle) low price.

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Bullish Counterattack Candlestick Pattern – Example

As you can see below, CIPLA LTD. formed a bullish counterattack pattern at the bottom of the downward trend, after which the price reversed upwards. The entry point for the trade was above the close price of the counterattack candlestick which was Rs. 476 and the stop loss order was at Rs. 459.75.

Bullish Counterattack Candlestick Pattern – Key takeaways

1. Composition: 

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

2. Indication: 

It indicates a potential trend reversal as the selling pressure is weakening and the buyers are trying to overcome the selling pressure.

3. Volume:

A bullish counterattack pattern coupled with high bullish volume is a strong indication of a potential trend reversal.

4. Trend:

The best scenario for this pattern to appear is after a downtrend as the likelihood of the bullish reversal increases.

Conclusion

In conclusion, a Bullish Counterattack Candlestick Pattern is not formed often in the market, traders must still know what this pattern indicates and how to trade. By utilizing this pattern, traders can get an early indication of a trend reversal. However, this pattern must be coupled with other indicators to confirm the trend reversal before placing a trade.

It is also recommended that traders place appropriate stop loss in place so that the loss can be minimized in cases where the trade goes against the analysis. What do you think about this pattern, please let us know your views in the comment section.

Written by Praneeth Kadagi

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