What is a Bearish Counterattack Pattern?
The Bearish Counterattack (also known as Bearish Meeting Lines) is a two-candle bearish reversal pattern that occurs at the peak of an uptrendUptrendA market direction characterized by a sequence of higher highs and higher lows.Read full glossary entry →. It is characterized by a long bullish candle followed by a bearish candle that opens with a large gapGapAn area on a chart where no trading activity took place, visible as an empty space between two consecutive candles.Read full glossary entry → up but plunges to close at the exact same level as the previous day's close. It signals that selling pressure has neutralized the buying force.
Pattern Structure
To identify a valid Bearish Counterattack:
- UptrendUptrendA market direction characterized by a sequence of higher highs and higher lows.Read full glossary entry → Context: The market must be in an established uptrend.
- First Candle: A long bullish (green) candle that continues the trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry →.
- Second Candle: A long bearish (red) candle. It must open with a significant gapGapAn area on a chart where no trading activity took place, visible as an empty space between two consecutive candles.Read full glossary entry → up from the previous close, but plunge to close at or very close to the closing price of the first candle.
- Equal Closes: The two candles meet at the same closing price, forming a horizontal line of resistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry →.
Market Psychology
- Bullish Acceleration: Buyers are in control, creating a long green candle. The next day, a large gap up opens, signaling buying euphoria.
- ResistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → Defended: At the higher price levels, large institutional sellers step in. They absorb the buy orders and aggressively drive price back down.
- Equilibrium Reached: The sellers manage to push the price all the way back down to close exactly at the previous day's close. This shows that the buying momentum has been stopped, and sellers have equalized the pressure.
Trading Setup
- Entry: Short on the open of the candle after a confirmation candle closes below the meeting point of the counterattack.
- Stop-Loss: Place the stop-loss orderStop-Loss OrderAn order placed with a broker to sell an asset when it reaches a specific price, designed to limit a trader's loss on a position.Read full glossary entry → just above the high of the second (bearish) candle's shadow.
- Take Profit: Target the next local supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → level or dynamic moving average.
Confirmation Rules
- The closing price of the second candle must match the closing price of the first candle within a few ticks.
- A third bearish candle must close lower to confirm that sellers have taken control.
- Selling volumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry → should expand on the second and third days.
Common Mistakes
[!WARNING]
- Trading Without Confirmation: Entering a trade immediately on the second candle. Since the closes are equal, the market is in balance; without a bearish day 3, buyers can easily push the price higher.
- Confusing with Engulfing: The second candle does not overlap the body of the first candle. It only meets the close. Do not apply engulfing rules here.
- Ignoring the Gap Size: Trading the pattern when the second candle opened with a tiny gap up. The gap up must be significant to represent buyer capitulation.