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The Meeting Lines or Counterattack Lines Pattern

What is the Meeting Lines Pattern?

The Meeting Lines Pattern

The Meeting Lines Pattern

The Meeting Lines pattern, which is also called the Counterattack Lines pattern, or deai sen, which means "lines that meet" in Japanese, is a double candlestick pattern trend reversal pattern that is similar to the Piercing Line and the Dark Cloud Cover patterns in that it consists of two candlesticks of alternating colors that have relatively large real bodies and initially gaps away from each other. The defining difference being that the two candlesticks that form the Meeting Lines pattern have the same, or nearly the same, close, where as in the Piercing Line and the Dark Cloud Cover patterns, the second candlestick closes within the real body of the previous candlestick. The failure of the Meeting Lines pattern to penetrate the real body of the previous candlestick means that it is less reliable than the Piercing Line and the Dark Cloud Cover patterns.

The bullish Meeting Lines pattern is also similar to the In-Neck pattern in that it consists of two candlesticks of alternating colors that initially gaps away from each other but have more or less the same closing price, though the In-Neck pattern is a bearish trend continuation pattern.

The Meeting Lines candlestick pattern can also be a bullish reversal pattern if it appears in an established downtrend or a bearish reversal pattern if it appears in an established uptrend. In both cases, the first candlestick moves in the direction of the trend while the second moves against the trend.

The Meeting Lines Formation

The Meeting Lines pattern can appear in an established trend and consists of two candlesticks. The first candlestick in the pattern is a relatively large candlestick that is supportive of the current trend. The second candlestick in the formation is also a relatively large candlestick that gaps well away from the real body of the first candlestick but then turns back to close at the same level as the previous candlestick in the pattern. The result is two large candlesticks of alternating colors with the same or almost the same closing price.

The Bullish Meeting Lines Formation

The bullish Meeting Lines pattern can appear in an established downtrend and consists of two candlesticks. The first candlestick in the pattern is a bearish candlestick that supports the current downtrend and is dark in color with a relatively large real body. This candlestick is followed by a second candlestick that, like the second candlestick in the In-Neck pattern, gaps down to open well away from the real body of the first candlestick but then turns bullish and closes at the same level as the previous candlestick in the pattern. Unlike the second candlestick in the In-Neck pattern, the second candlestick in the bullish Meeting Lines pattern should have a relatively large real body though it need not be as large as the first candlestick in the pattern.

What the Bullish Meeting Lines Pattern tells us

The bullish Meeting Lines pattern must occur in an established downtrend for it to be of significance. The first candlestick in the pattern is supportive of the current downtrend and has a relatively large real body. The size of this candlestick shows that the bears are clearly still in control of the market. This candlestick is followed by a second candlestick that gaps down on open well away from the real body of the previous candlestick, re-affirming the bearish sentiment the market has in relation to the underlying security. However, the second candlestick soon turns bullish and closes at the same level as the previous candlestick in the pattern. This has serious bullish implications, given that the relatively large size of the second candlestick reflects the strength of the bulls. The second candlestick counterattacks the bearish trend and implies a marked shift in market sentiment, with the possibility of a transition to a bullish trend reversal in the making.

Trading the Bullish Meeting Lines Pattern

The bullish Meeting Lines pattern is a trend reversal pattern that warns of weakness in a downtrend and suggests that the downtrend could be coming to en end. However, the bullish Meeting Lines pattern is not as bullish as the Piercing Line pattern as the second candlestick in the Meeting Lines pattern does not penetrate the real body of the previous candlestick and, thus, does not close higher than the close of the first candlestick in the pattern. It is therefore advisable to wait for confirmation before taking a long position that would be against the prevailing downtrend. Confirmation would be a close above the real body of the last candlestick in the pattern. Traders holding short positions are also advised to wait for confirmation of the pattern before closing their shorts.

As a long position would be taken against the current downtrend, a protective stop-loss order should be used to limit the risk of the pattern failing. This protective stop-loss could be placed at the low of the last candlestick in the pattern as a break below this level would negate the pattern and could suggest that the prevailing downtrend might continue. However, if the placement of the protective stop-loss is too far from the entry to provide a favorable risk/reward ratio, the trader could wait for a possible pull-back towards the potential support area represented by the open of the last candlestick in the pattern. This would place the entry much closer to the protective stop and would reduce the capital at risk on the trade, though there is no guarantee that a pull-back will occur. Remember that the bullish Meeting Lines pattern is a moderate pattern and confirmation of the pattern must first be obtained before placing a buy order.

The bullish Meeting Lines pattern does not provide a clear profit target. Instead, a trader could implement a profit target based on a defined risk/reward ratio, a measured move, or some other trading mechanism can be used to exit the trade. This could be a Fibonacci retracement level, the appearance of a bearish candlestick formation, or a simple trailing stop.

As with most trend reversal patterns, the bullish Meeting Lines pattern becomes more reliable depending on where it appears on the price chart in relation to trendlines, pivot points, and support and resistance lines, etc. Furthermore, traders can use the bullish Meeting Lines pattern in conjunction with an oscillating indicator, such as the RSI, that shows the security to be oversold.

The Bearish Meeting Lines Formation

The bearish version of the Meeting Lines pattern is the opposite of the bullish Meeting Lines pattern and is similar to the Dark Cloud Cover pattern. It must occur in an extended uptrend before should be taken into consideration. The first candlestick in the pattern is supportive of the current uptrend and is light in color with a relatively large real body. This candlestick is then followed by a second candlestick that gaps well up on its open to open well above the real body of the first candlestick. However, the second candlestick soon declines to close at, or very close to the same level as the first candlestick in the pattern. The second candlestick thus becomes a bearish, dark-colored candlestick that also has a relatively large real body.

The bearish Meeting Lines pattern differs from the bearish Dark Cloud Cover pattern in that the second candlestick in the Meeting Lines pattern does not penetrate the real body of the first candlestick.

What the Bearish Meeting Lines Pattern tells us

The bearish Meeting Lines pattern occurs in an uptrend where the first candlestick in the pattern is a bullish candlestick that is supportive of the current trend and has a relatively large real body. The relatively large size of this candlestick shows that the bulls are still in full control of the market. This candlestick is followed by a second candlestick that gaps up on open well above from the real body of the previous candlestick, re-affirming the strength of the bull. However, the second candlestick soon turns bearish and declines to close at the same level as the previous candlestick in the pattern. This has serious bearish implications as it shows that the bears are in control during this session. The second candlestick counterattacks the bullish trend and implies a marked shift in market sentiment, with the possibility of a transition to a bearish trend reversal.

Trading the Bearish Meeting Lines Pattern

Trading the bearish Meeting Lines pattern is the inverse of trading its bullish counterpart. Here the Meeting Lines pattern warns of weakness in an uptrend and suggests that the uptrend could be coming to an end, but the bearish Meeting Lines pattern is not as strong a signal as the Dark Cloud Cover pattern as the second candlestick in the Meeting Lines pattern does not penetrate the real body of the previous candlestick. It is therefore recommended that the trader waits for confirmation of the pattern before taking a long position. Confirmation would be a close below the real body of the last candlestick in the pattern. Traders with existing long positions are also advised to wait for confirmation of the pattern before closing their positions.

As taking a short position would be taken against the prevailing uptrend, a protective stop-loss order should be used to limit the risk of the pattern failing. This protective stop-loss could be placed at the high of the last candlestick in the pattern as a break above this level would negate the pattern and could suggest that the prevailing uptrend is likely to continue. However, if the placement of the protective stop-loss is too far from the entry to provide a favorable risk/reward ratio, the trader could wait for a possible pull-back towards the potential resistance area represented by the open of the last candlestick in the pattern. This would place the entry much closer to the protective stop and would reduce the capital at risk on the trade, though there is no guarantee that a pull-back will occur. Remember that confirmation of the pattern should first be acquired before taking a short position.

The bearish Meeting Lines pattern does not provide a clear profit target. Instead, a trader could implement a profit target based on a defined risk/reward ratio, a measured move, or some other trading mechanism can be used to exit the trade. This could be a Fibonacci retracement level, the appearance of a bullish candlestick formation, or a simple trailing stop.

As with the bullish Meeting Lines pattern, the bearish Meeting Lines pattern becomes more reliable when it appears near a trendline, pivot point, or support line on the chart. A Meeting Lines pattern at or near a trendline or a support line can be used as confirmation that the test of the trendline is more likely to fail. Furthermore, traders can use the Meeting Lines pattern in conjunction with an oscillating indicator, such as the RSI, that shows the security to be overbought.

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