Bearish Counterattack Candlestick Patterns and Trading Ideas
Bearish counterattack candlestick pattern: Candlestick patterns are a part of technical analysis favored by traders to understand and predict future price movements of securities. Among the various patterns, the Bearish Counterattack Candlestick Pattern is a two-candlestick pattern that helps traders spot potential reversals in the security.
In this article, we will discuss what the Bearish Counterattack Candlestick Pattern means and how to set up a trade based on the pattern formation.
Bearish Counterattack Candlestick Pattern – Definition
The Bearish Counterattack Candlestick pattern is a two candlestick pattern that indicates a potential trend reversal. These two candlestick patterns can appear in an uptrend or a downtrend.
In a bearish counterattack, if the current market price is in an upward trend and the next candle opens with a gap up and closes at the previous candle’s closing price, it is identified as a bearish counterattack candle pattern.
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The formation of this pattern indicates a trend reversal. Therefore, after a bearish counter-trend is formed, the price may trend downward. Here, the closing price of the second candle is equal to or slightly lower than the closing price of the first candle.
How to identify bearish counter candlestick patterns?
In a bearish counterattack candlestick pattern, the first candle should be bullish (green candle). The second candle should open with a gap up and close near the same closing price as the first candle. Therefore, the second candle should be bearish (red candle). In an uptrend, it is desirable for a bearish counterattack to form.
The second candle here is commonly called a counterattack candle. When this pattern forms, the stock price may trend downward.
Bearish Counterattack Candlestick Pattern – Psychology
When the stock price is in an upward trend, the first candle is bullish (green candle) due to buying pressure. The second candle then opens with a widening price gap due to increased buying pressure, but the price begins to fall and closes at approximately the same price as the first candle’s closing price.
This is because buying pressure is decreasing and selling pressure is overwhelming buying pressure. The formation of these patterns causes fear and anxiety in investors. Because of this, we typically see increased selling pressure over the next few candlestick trading periods.
Bearish Counterattack Candlestick Pattern – Trading Ideas
The best scenario for this pattern to occur is after an uptrend. To start trading securities after this pattern appears, you must follow these steps:
- Entrance – The appropriate entry point is to take a sell position at the close or just below the low of the bearish candle (red candle). However, if you want a safer entry, take a sell position after the price falls below the opening of the first candle (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 a partial profit on the trade and hold the remaining position until the next support level.
- Stop Loss – The stop loss should be placed just above the high price of the bearish candle (red candle).
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Bearish Counterattack Candlestick Pattern – Example
In the NIFTY BANK 1-day chart above, you can see a bearish counter candle pattern forming after an uptrend. As discussed in the article, the price has entered a downward trend since its formation.
When a bearish counter candlestick pattern was formed, traders could take a short position at Rs. 28257.35 and the stop loss was Rs. 26406
Highlights of the Bearish counterattack pattern
composition: In a bearish reversal candlestick pattern, the first candlestick is a rising candlestick and the second candlestick is a falling candlestick that starts with a rising gap and closes at the previous candlestick’s close.
mark: This signals a potential trend reversal as buying pressure is waning and sellers are trying to overcome the buying pressure.
Volume: A bearish counter candlestick pattern combined with high bearish volume is a strong signal of a potential trend reversal.
tendency: The best scenario for this pattern to occur is during an uptrend as the likelihood of a bearish reversal increases.
read more: Bullish counterattack candlestick pattern
conclusion
Bearish retracement candlestick patterns are not often observed in the markets, but traders should know what they mean and how to trade them. This pattern can provide early signs of a trend reversal, but it is necessary to combine it with other indicators to confirm a trend reversal before entering a trade.
Additionally, traders are advised to place an appropriate stop loss order to minimize losses if a trade goes against their analysis. What are your views on this candlestick pattern? Let us know through the comments section.
Written by Praneeth Kadagi
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