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In this article, we are going to understand some of the prominent candlestick patterns that every trader should know about. Candlestick patterns play a key role in identifying reversals in the markets and traders who know how to use them correctly have an ultimate edge in trading. However, a lot has already been written and a plethora of material is readily available out there on using these patterns.

So, how will this article be different? You might ask.

Well, to begin with, in this series, we are going to focus on some of the lesser-known candlestick patterns. Yes, effective patterns, but at the same time elusive! Patterns like Bullish Engulfing, Bearish Engulfing, Dark Cloud Cover, etc. are pretty much common and a lot of information is readily available about them on the internet. We would not like to repeat and reiterate what is already available and tell you what you already know.

We would rather focus on some of the advanced patterns whose knowledge would be extremely valuable in analyzing the markets and provide you with an ultimate edge. We will demonstrate the effectiveness of these patterns with some actual examples to enable you to apply this knowledge right away in your trading journey.

Do note, that candlestick patterns work best on higher time frames i.e. for swing and positional trading. Thus, whatever patterns we discuss here should be observed on the daily, weekly, and monthly time frames for better results. Without wasting any more time, let’s start with the first two patterns in our advanced candlestick series.

1) Bullish and Bearish Counter-Attack Candlestick Patterns:

This trend reversal candlestick pattern consists of two candlesticks moving in opposite directions. It can occur after a downtrend in prices as well as in an uptrend in prices. The indication is regarded as a bullish counterattack pattern when it appears during a decline. Conversely, the indicator is known as a bearish counterattack pattern during an uptrend.

Pattern Identification:

Bullish Counter Attack:A Bullish counterattack candlestick forms at the bottom. There is a steady downtrend in prices and the first candle is Red and the second one is Green. The second candle opens after a gap-down but closes at the closing price of the first candle.

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2) Bearish Counterattack

A Bearish Counter-Attack candlestick forms at the top. There is a steady uptrend in prices and the first candle is Green while the second one is Red. The second candle opens after a gap-up but closes at the closing price of the first candle.

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So how do we Trade Counter Attack Signals?
1) There should be a clearly defined up-trend for a bearish counterattack signal and a clearly defined downtrend for a bullish counterattack signal.

2) Preferably, these candles should be wide-range candles showing bears/bulls firmly in control.

3) Traders should look for confirmation with other technical tools for bullish/bearish counterattack signals.

4) For example, a bullish counterattack pattern at the lower end of the Bollinger Bands and an oversold RSI would signal a powerful reversal.

5) Once the pattern is spotted, an entry can be triggered; then once the high of the pattern is crossed, a stop loss can be placed below the low of the pattern and one can aim for a minimum target of 3:1 i.e thrice the reward for the risk in the trade. Vice-versa for bearish patterns.

Let’s examine a few practical illustrations of both Bullish and Bearish Counter-Attack signals on some actual price charts.

First, let’s look at a Bullish Counter-Attack signal on Bank Nifty on 28th January 2021.

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Nifty Bank – The Bullish CounterAttack signal at lower Bollinger Band at support levels suggested a strong possibility of a reversal.

Bullish Counterattack signal outcome –

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Bearish Counterattack signal on SBI on Feb 21

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SBI – The Bearish counterattack signal at the Upper Bollinger Band with overbought RSI suggested a strong possibility of a reversal.

Bearish CounterAttack outcome –

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SBI – Strong reversal followed after the Bearish counterattack signal

Moving onto some more interesting candlestick patterns, namely Bullish and Bearish Belt Hold Lines.

We will not only be talking about the meaning and significance of these patterns, and how to spot them on the price charts, but more importantly, we will also learn how to trade them! We will also be looking at some practical examples on the price charts showing these patterns in action. It is important to note that Belt Hold Lines are amongst the few candlestick patterns that can be regarded as both reversal and continuation at the same time.

The Bullish Belt Hold Line pattern occurs when a long green (bullish) candlestick opens at or near the low of the session and closes near its high, without significant upper shadow. This pattern indicates strong buying pressure from the opening price to the closing price, suggesting a potential bullish continuation or reversal.

The Bullish Belt Hold Line pattern is considered significant because it shows a strong bullish sentiment right from the start of the session, often signaling a potential trend reversal or the continuation of an existing bullish trend.

Traders may consider entering long positions when they identify the Bullish Belt Hold Line pattern, ideally after a preceding downtrend. Stop-loss orders can be placed below the low of the Bullish Belt Hold Line candlestick, and profit targets can be set based on resistance levels or projected price moves.

Picture of a Bullish Belt Hold Line Pattern:

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Now let’s understand the anatomy of a Bearish Belt Hold Line:

The Bearish Belt Hold Line pattern is the opposite of the Bullish Belt Hold Line pattern. It occurs when a long red (bearish) candlestick opens at or near the high of the session and closes near its low, without a significant lower shadow. This pattern indicates strong selling pressure from the opening price to the closing price, suggesting a potential bearish continuation or reversal.

Similar to its bullish counterpart, the Bearish Belt Hold Line pattern is significant, because it shows strong bearish sentiment right from the start of the session, often signaling a potential trend reversal or the continuation of an existing bearish trend.

Traders may consider entering short positions when they identify the Bearish Belt Hold Line pattern, ideally after a preceding uptrend. Stop-loss orders can be placed above the high of the Bearish Belt Hold Line candlestick, and profit targets can be set based on support levels or projected price moves.

Picture of a Bearish Belt Hold Line pattern –

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Now that you have learned to identify them, let’s take a look at real-life examples of their appearance on the price charts:

Example of a Bullish Belt-hold line

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A Bullish Belt Hold Line was observed on Nifty around its support of 19,200 on 1st Sept 2023.

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And now you can also observe the outcome seen after the Bullish Belt-Hold Line was observed.

Example of Bearish Belt-hold line

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Let’s also look at a Bearish Belt Hold Line observed on SBI at its resistance level of 621-622 on 25th July 2023. You can also visibly see the outcome after the Bearish Belt Hold Line was observed.

Outcome of Bearish Belt Hold Line –

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I hope you enjoyed my insights on these two simple but effective candlestick patterns.

Until the next time, Happy Trading and Investing!

(Rahul Ghose is CEO of Hedged.in. Views are own)

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