Investor Education Story

Financial Indicator

Macroaxis News
  
By Nathan Young

July 17, 2017

Candlestick patterns a useful way to find trends and potential movements within a market. The counterattack candlestick pattern is very useful because it can be used in both a bear and bull market.

Counterattack

To look for the setup, you will need a trend in either direction with at least two ending candles as followed. The first candle needs to still be in that trend with a large body. The second candle will indicate a gap and then a long body in the opposite direction.




Let us break this down into bears and bulls, starting with the bears. In a bear market, a counter attack will occur when on the first period candle has a large body following the bearish trend. The second candlestick will then have a gap and large body to this upside, closing near the close of the previous candle. This can indicate that the shorts lost control due to profit taking or similar items. Another indication could be the chart has hit support and this is where buyers feel the equity is cheap enough to purchase again.

Now, if we take it to the bulls side of the equation, it is the same thing except flipped. Meaning we need to see a defined bullish trend with the first candle being a bullish candle. The second needs to have a gap up with a long body to the down side with a close near the close of the previous candle.

It is important to note volume when this is occurring because when the counter attack beings, if there is higher volume than the previous candle, that could indicate the opposite trend really took control and may be pushing the stock back lower. Just like all patterns, these are not one hundred percent accurate and should be used as a trigger to take a closer look at the chart or company. The counterattack is useful pattern and will hopefully bring an edge to your trading or investing.

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