The bearish counterattack, also knowns as the bearish counterattack lines, is a Japanese candlestick pattern that makes $14.50 in the forex market and loses $55.80 and $0.60 in the crypto and stock markets, respectively, on average per $100 risked.
It sounds like this bearish reversal pattern is a dud, right?
But what if I told you that you could make this unprofitable candle pattern into a money-maker by listening to history?
Would you be interested?
If so, keep reading if you want to learn how to trade the bearish counterattack lines pattern in a profitable, data-driven way.
What Is a Bearish Counterattack Candlestick Pattern
The bearish counterattack lines patterns supposedly signal a trend reversal. But as mentioned above, this two-candle reversal pattern produces subpar profits using a traditional trading strategy.
We can do better.
But before we learn how to use Japanese candlestick charting techniques to trade this pattern, we must learn how to identify the counterattack lines candlestick pattern.
How to Identify the Bearish Counterattack Candlestick Pattern
The following are the requirements for a valid bearish counterattack pattern:
- The first candle must be bullish with a long real body.
- The second candle must be bearish.
- The second candle must close near the first candle close.
- The pattern must occur during an uptrend.
We see the bearish counterattack pattern on the Abbot Labs daily chart occurring on December 7th, 2021.
Price is in an uptrend as it’s above the fifty-day moving average on our candlestick chart. We then see the first candle is a long-bodied bullish candle. We see the second candle gaps up, and the closing price is roughly equal to the prior candle’s closing price, giving us the bearish counterattack pattern.
Now that we know how to identify this counterattack candlestick pattern, let’s learn how to trade it.
How to Trade the Bearish Counterattack Candlestick Pattern
The bearish counterattack lines candlestick pattern should be traded as a bullish continuation in the stock market and using a bullish mean reversion trading strategy in the crypto and forex markets.
Before we go into how to profit using past performance as a guide, let’s learn how most traders handle this pattern.
Bearish Counterattack Bearish Reversal Trade Setup
We can see the bearish counterattack line on TrandDigm’s (TDG) candlestick charts on September 17th, 2020.
Price is in an uptrend. The first bar is a bullish white candle. The second candle gaps up, and selling pressure moves the bar in the opposite direction, closing near the first candle’s close.
With the pattern identified, traditional traders trade these patterns as trend reversals and go short at a break of the second candle’s low and place their stop loss at the first candle’s high.
In this example, there was high selling pressure the next day, leading to a profitable trade before the bears lose steam.
Now that we know how most traders lose money on this pattern on average, let’s learn how to make it.
Bearish Counterattack Bullish Continuation Trade Setup
The bearish counterattack line pattern shows up on the Apple (AAPL) daily chart on March 7th, 2012.
We see bullish price action above the fifty-day moving average and then a bullish and bearish with longer real bodies closing near each other. How do we trade this as a continuation pattern in the stock market with the signal set?
Simple.
Data-driven traders go long when the price breaks above the close with a stop loss below the first bar’s low, expecting the bullish trend to continue.
And while past performance doesn’t always predict future results, I would rather have history on my side.
That said, this pattern does lose money in other markets, but there is a way to trade it consistently in a profitable manner in all markets.
Bearish Counterattack Bullish Mean Reversion Trade Setup
The bearish counterattack lines pattern appears on the Novartis (NVS) daily candlestick charts on August 27th, 2020.
The prevailing trend is bullish as the price is above the fifty-day moving average (barely). The bull candle and the bear candle move in opposite directions, and both have a decently sized real body. Let’s discuss the bullish reversal mean reversion trade strategy with the signal set.
Traders wait for the price to drop below the pattern low, which in this case is $86.62 occurring on the first candlestick. When the price moves back above the pattern low, traders go long with a stop loss of one average true range (ATR) below the entry price.
The price did this on the first candle after our signal and led to a profitable trade.
Now that we know how to trade this pattern, how did it perform historically?
Does the Bearish Counterattack Pattern Work? (Backtest Results)
Using the following rules, I backtested the bearish counterattack lines candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.
- A close above the 50-day SMA constitutes an uptrend.
- I tested risk-reward ranges from 1 to 5.
- The optimal risk-reward ratio is selected using profit per bar.
- Entry and exits are discussed in the how-to trade section above.
- Confirmation must occur within three days of the pattern signal.
Bearish Counterattack Bearish Reversal Backtest Results
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | bearish counterattack | bearish counterattack | bearish counterattack |
| pattern_category | bearish reversal | bearish reversal | bearish reversal |
| pattern_bars | 2 | 2 | 2 |
| required_trend | uptrend | uptrend | uptrend |
| traded_as | bearish reversal | bearish reversal | bearish reversal |
| stop_bar_type | high | high | high |
| entry_bar_type | low | low | low |
| risk_reward | 1 | 5 | 2 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 7 | 92 | 1806 |
| patterns | 21 | 399 | 5717 |
| trades | 18 | 293 | 4111 |
| confirm_perc | 0.86 | 0.73 | 0.72 |
| wins | 4 | 56 | 1366 |
| losses | 14 | 237 | 2745 |
| win_perc | 0.222 | 0.191 | 0.332 |
| avg_win_bars | 1.0 | 30.0 | 12.95 |
| avg_loss_bars | 9.36 | 16.16 | 10.72 |
| cons_wins | 1 | 6 | 5 |
| cons_losses | 3 | 10 | 8 |
| edge | -0.558 | 0.145 | -0.006 |
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | bearish counterattack | bearish counterattack | bearish counterattack |
| pattern_category | bearish reversal | bearish reversal | bearish reversal |
| pattern_bars | 2 | 2 | 2 |
| required_trend | uptrend | uptrend | uptrend |
| traded_as | bearish reversal | bearish reversal | bearish reversal |
| stop_bar_type | high | high | high |
| entry_bar_type | close | close | close |
| risk_reward | 1 | 5 | 1 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 7 | 92 | 1806 |
| patterns | 21 | 403 | 5742 |
| trades | 21 | 368 | 4974 |
| confirm_perc | 1.0 | 0.91 | 0.87 |
| wins | 4 | 103 | 2649 |
| losses | 17 | 265 | 2325 |
| win_perc | 0.19 | 0.28 | 0.533 |
| avg_win_bars | 15.5 | 14.27 | 2.93 |
| avg_loss_bars | 3.53 | 12.68 | 3.65 |
| cons_wins | 1 | 10 | 8 |
| cons_losses | 4 | 12 | 5 |
| edge | -0.62 | 0.68 | 0.063 |
Bearish Counterattack Bullish Continuation Backtest Results
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | bearish counterattack | bearish counterattack | bearish counterattack |
| pattern_category | bearish reversal | bearish reversal | bearish reversal |
| pattern_bars | 2 | 2 | 2 |
| required_trend | uptrend | uptrend | uptrend |
| traded_as | bullish continuation | bullish continuation | bullish continuation |
| stop_bar_type | low | low | low |
| entry_bar_type | high | high | high |
| risk_reward | 2 | 3 | 5 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 7 | 92 | 1806 |
| patterns | 21 | 405 | 5713 |
| trades | 12 | 185 | 2500 |
| confirm_perc | 0.57 | 0.46 | 0.44 |
| wins | 4 | 19 | 491 |
| losses | 8 | 166 | 2009 |
| win_perc | 0.333 | 0.103 | 0.196 |
| avg_win_bars | 0.75 | 10.47 | 23.34 |
| avg_loss_bars | 0.5 | 6.02 | 6.62 |
| cons_wins | 2 | 3 | 4 |
| cons_losses | 4 | 8 | 5 |
| edge | -0.004 | -0.591 | 0.18 |
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | bearish counterattack | bearish counterattack | bearish counterattack |
| pattern_category | bearish reversal | bearish reversal | bearish reversal |
| pattern_bars | 2 | 2 | 2 |
| required_trend | uptrend | uptrend | uptrend |
| traded_as | bullish continuation | bullish continuation | bullish continuation |
| stop_bar_type | low | low | low |
| entry_bar_type | close | close | close |
| risk_reward | 5 | 5 | 5 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 7 | 92 | 1806 |
| patterns | 21 | 400 | 5734 |
| trades | 21 | 382 | 4999 |
| confirm_perc | 1.0 | 0.96 | 0.87 |
| wins | 6 | 63 | 1168 |
| losses | 15 | 319 | 3831 |
| win_perc | 0.286 | 0.165 | 0.234 |
| avg_win_bars | 0.17 | 5.24 | 5.22 |
| avg_loss_bars | 1.67 | 4.14 | 1.95 |
| cons_wins | 1 | 2 | 4 |
| cons_losses | 5 | 13 | 10 |
| edge | 0.72 | -0.015 | 0.4 |
Bearish Counterattack Mean Reversion Backtest Results
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | bearish counterattack | bearish counterattack | bearish counterattack |
| pattern_category | bearish reversal | bearish reversal | bearish reversal |
| pattern_bars | 2 | 2 | 2 |
| required_trend | uptrend | uptrend | uptrend |
| traded_as | bearish mean reversion | bearish mean reversion | bearish mean reversion |
| stop_bar_type | atr | atr | atr |
| entry_bar_type | pattern_high | pattern_high | pattern_high |
| risk_reward | 5 | 1 | 1 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 7 | 92 | 1806 |
| patterns | 20 | 402 | 5752 |
| trades | 10 | 141 | 1960 |
| confirm_perc | 0.5 | 0.35 | 0.34 |
| wins | 2 | 81 | 1001 |
| losses | 8 | 60 | 959 |
| win_perc | 0.2 | 0.574 | 0.511 |
| avg_win_bars | 2.0 | 7.53 | 3.5 |
| avg_loss_bars | 6.38 | 20.05 | 4.04 |
| cons_wins | 1 | 5 | 4 |
| cons_losses | 2 | 3 | 4 |
| edge | 0.2 | 0.144 | 0.021 |
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | bearish counterattack | bearish counterattack | bearish counterattack |
| pattern_category | bearish reversal | bearish reversal | bearish reversal |
| pattern_bars | 2 | 2 | 2 |
| required_trend | uptrend | uptrend | uptrend |
| traded_as | bullish mean reversion | bullish mean reversion | bullish mean reversion |
| stop_bar_type | atr | atr | atr |
| entry_bar_type | pattern_low | pattern_low | pattern_low |
| risk_reward | 5 | 5 | 5 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 7 | 92 | 1806 |
| patterns | 18 | 378 | 5707 |
| trades | 10 | 156 | 1883 |
| confirm_perc | 0.56 | 0.41 | 0.33 |
| wins | 3 | 33 | 412 |
| losses | 7 | 123 | 1471 |
| win_perc | 0.3 | 0.212 | 0.219 |
| avg_win_bars | 32.0 | 204.24 | 39.45 |
| avg_loss_bars | 5.29 | 62.25 | 15.01 |
| cons_wins | 1 | 3 | 2 |
| cons_losses | 4 | 11 | 5 |
| edge | 0.8 | 0.27 | 0.315 |
Interpreting the data, we see that the bearish counterattack leads to volatility as both bullish and bearish mean reversion strategies are profitable. And then, after the volatility, a resumption of the original bullish trend.
Similar Candlestick Patterns
Many candlestick patterns are often confused with the bearish counterattack. It’s essential to understand the differences when using candlestick pattern technical analysis.
Bullish Counterattack vs. Bearish Counterattack Candlestick Pattern
The bullish counterattack candlestick pattern, also known as the bullish counterattack lines, is almost identical to the bearish counterattack with all rules reversed.
The bullish counterattack pattern occurs in a downtrend, while the bearish expects the opposite.
The first candle of the bullish counterattack is a black candle with a long real body, while the bearish counterattack has a white candle, again with a large real body.
The second candle in both patterns also has a long real body but moves in an opposite direction compared to the first candle, with both candles closing prices being similar.
The Bottom Line
The bearish counterattack pattern is thought of as a potential reversal trade, but as we see so often, conventional trading wisdom is wrong. The bearish counterattack tends to forecast volatility in all markets before a likely continuation of the current trend.
