Bearish Counter-Attack Candlestick Pattern

The Bearish Counter-Attack candlestick pattern is a bearish reversal candlestick pattern. A Bearish Counter-Attack candlestick pattern can lead to a swift price reversal to the downside.

An uptrend has been in place for some time and bullish investors feel good about the momentum of the share price. A Bearish Counter-Attack candlestick pattern starts off with much more of the same, maybe even a little too much jubilee as the price opens with a gap-up compared to the previous candlestick pattern’s closing price. Bullish investors are feeling great about the morning gap-up.

But somewhere in the middle of the trading period, things change. Investors are selling shares and by the end of the trading period the closing price for the candlestick is the same, or even slightly below the previous candlestick’s closing price. Hence the “counter-attack” naming convention.

The selling momentum usually carries into the next couple of trading periods. But after the share price ceases to decline and starts to rebound, it may be best to wait for a re-test of the bottom before the rebound. The first re-test of the Bearish Counter-Attack’s resistance area is key to determining the significance of the candlestick.

Requirements

These are the requirements for a Bearish Counter-Attack candlestick pattern.

• A Bearish Counter-Attack candlestick pattern is made up of 2 candlesticks
  • The 1st candlestick in the pattern has a green colored real body
• The 2nd candlestick in the pattern gaps higher at the open than the 1st candlestick’s closing share price
  • The closing share price, even after the initial gap-up, closes at the same or almost the same share price as the 1st candlestick in the pattern
• The Bearish Counter-Attack is confirmed on the 3rd candlestick if the share price continues the reversal of momentum that started to take place with the 2nd candlestick

Characteristics & Observations

These are some of the characteristics I have observed with several different Bearish Counter-Attack candlestick patterns.[s2If !current_user_can(access_s2member_level1)]…..

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• The Bearish Counter-Attack candlestick pattern usually catches most bullish investors off-guard
• The larger the gap-up is for the 2nd candlestick in the pattern, the statistical chances for a bearish reversal increase
  • Bearish investors were able to not only reverse the gap-up momentum, but they also forced the price to close at or slightly below the previous day’s closing price
• If the 1st re-test of the resistance area fails to negate the resistance by breaking above the resistance area, there is an extremely good chance for some very bearish price action to follow
  •  A failure to break above the resistance area indicates a corrective type of Elliott wave pattern is developing
    • It is important to start calculating downside price targets and support areas in the event of a continued pullback

Bullish Counter-Part

The bullish counter-part to a Bearish Counter-Attack candlestick pattern is a Bullish Counter-Attack candlestick pattern.

The difference between Bearish Counter-Attack candlesticks and Bullish Counter-Attack candlesticks is where they develop in the stock’s trend. A Bearish Counter-Attack candlestick develops at the top of an uptrend where as a Bullish Counter-Attack candlestick develops at the bottom of a downtrend.

Resistance Area

The resistance area for a Bearish Counter-Attack candlestick pattern is the top of its upper shadow. If the candlestick does not have an upper shadow, then the top of the candlestick’s real body is the resistance area.

Trading Strategies

I will review 2 different trading strategies for this bearish reversal candlestick pattern. The first strategy will review scaling-out of a position that you hold when the candlestick pattern develops. The second and more aggressive strategy will involve entering into a short sale position based on further anticipated declines in the share price.

Always be sure to step back and analyze the “trend of one larger degree“. This can help you determine if the pullback is going to be shorter-term in nature or if it is the start of something extremely more bearish in nature.

If You Are Currently Long the Stock

If You Are Looking to Short the Stock

Real Chart Examples

This is a 3 year weekly candlestick chart for Apple (AAPL). It illustrates a Bearish Counter-Attack candlestick pattern that developed on volume that was significantly higher than the previous several weeks average trading volume.

The Bearish Counter-Attack Candlestick Pattern that Developed on Apple’s (AAPL) Weekly Chart Was the First Signal the Uptrend Was Over

The Bearish Counter-Attack candlestick pattern indicated Apple’s uptrend was over. There were clues that the uptrend was nearing its end, like Apple’s share price grinding away for several weeks and barely making new highs. The MACD Histogram was even starting to show increasing selling momentum as its share price rose. That is called a bearish divergence.

So what does Apple have in store when it approaches the overhead?

We have to wait until at least Apple’s next earnings report to determine if it will even continue its uptrend back towards its overhead resistance.