What is a Bullish Counterattack Pattern?
The Bullish Counterattack (also known as Bullish Meeting Lines) is a two-candle bullish reversal pattern that occurs at the bottom of a downtrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →. It is characterized by a long bearish candle followed by a bullish 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 → down but rallies to close at the exact same level as the previous day's close. It signals that buying pressure has neutralized the selling force.
Pattern Structure
To identify a valid Bullish Counterattack:
- DowntrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry → Context: The market must be in an established downtrend.
- First Candle: A long bearish (red) 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 bullish (green) 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 → down from the previous close, but rally 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 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 →.
Market Psychology
- Bearish Acceleration: Sellers are in control, creating a long red candle. The next day, a large gap down opens, signaling panic selling.
- 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 → Defended: At the lower price levels, large institutional buyers step in. They absorb the sell orders and aggressively bid price back up.
- Equilibrium Reached: The buyers manage to push the price all the way back up to close exactly at the previous day's close. This shows that the selling momentum has been stopped, and buyers have equalized the pressure.
Trading Setup
- Entry: Buy on the open of the candle after a confirmation candle closes above 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 below the low of the second (bullish) candle's shadow.
- Take Profit: Target the next local 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 → 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 bullish candle must close higher to confirm that buyers have taken control.
- Buying 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 bullish day 3, sellers can easily push the price lower.
- 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 down. The gap down must be significant to represent seller capitulation.