[Statedef -2]

[State 2OS]
type=lifeadd
trigger1=(stateno=[120,155])&&gethitvar(damage)
value=gethitvar(damage)
ignorehitpause=1
persistent=1

[State -3, Restore Defence]
type = DefenceMulSet
trigger1 = stateno != [120,149] ;Not guarding
value = 1

[State -3, Powerup Defence]
type = DefenceMulSet
trigger1 = stateno = [120,149] ;Guarding
value = 20 ;Or something

this is how it is exactly in my strider.

[mcode]
;---------<Counter attack>----------
[State 0, Both players In attacking formation]
type = VarSet
triggerall = roundstate = 2
trigger1 = root,movetype = A && enemynear,movetype = A
var(5) = 1
ignorehitpause = 1

[State 0, Attack Connects before Enemy]
type = VarSet
triggerall = roundstate = 2
trigger1 = 1
var(6) = ifelse(var(5) = 1, root,movehit && enemynear,movetype = H , 0)
ignorehitpause = 1

[State 0, Hit span time]
type = VarAdd
triggerall = roundstate = 2
trigger1 = 1
var(7) = ifelse(var(6) >= 1, 1, -var(7))
ignorehitpause = 1

[State 0, Reset all]
type = VarSet
trigger1 = roundstate = 3
var(7) = 0
ignorehitpause = 1

[State 0, Reset all]
type = VarSet
triggerall = roundstate = 2
trigger1 = var(7) > 1 || root,movetype != A && enemynear,movetype != A || roundstate = 3
var(5) = 0
ignorehitpause = 1

[State 0, Counter Attack!]
type = Explod
triggerall = roundstate = 2
trigger1 = var(7) = 1
anim = ifelse(teamside = 1,9946,9947)
pos = ifelse(teamside = 1, 160,380),120
postype = left
id = 9943
bindtime = -1
removetime = -2
pausemovetime = 999999
supermovetime = 999999
scale = .5,.5
sprpriority = 5
ontop = 1
ownpal = 1
ignorehitpause = 1

[State 0, Counter Attack! "Move away from hit Counter"]
type = ModifyExplod
triggerall = roundstate = 2
trigger1 = root,var(57) > 1
pos = ifelse(teamside = 1, 160,380),140
postype = left
id = 9943
ignorehitpause = 1

[State 0, Counter hit Pause Delay]
type = Pause
triggerall = roundstate = 2
trigger1 = var(7) = 2
time = 5
movetime = 5
ignorehitpause = 1

[State 0, EnvColor]
type = EnvColor
triggerall = roundstate = 2
trigger1 = var(7) = 1
value = 255,255,255
time = 2
ignorehitpause = 1

[State 0, Counter attack Announcer]
type = PlaySnd
triggerall = roundstate = 2
trigger1 = var(7) = 1
value = S6000,3
volume = 255
channel = 21
ignorehitpause = 1[/mcode]

As you can see, those triggers i posted earlier are in use, I tried to keep it simple but my actual method is a bit more complexed. And I have all of this coded inside a system helper thats active at all times.

Are you testing against your character and other enemies? If it happens on either but not both you can narrow it down a little.
I doubt the fall animation and the dead animation are the same. Check the fall animation to see if it's not switching properly.
You can try to extend the animation's starting frame out to see if it's not another animation cutting in the way. Change it completely to a hitspark or something noticeable so you know exactly what's going wrong.

[mcode][State -3, Counter]
type = Explod
trigger1 = movetype = A && enemynear,movetype = A
trigger1 = movehit ;&& enemynear,movetype = H  <------------remove the ;
anim = F350
pos = 0,0
postype = p1
facing = 1
vfacing = 1
bindtime = 1
vel = 0,0
random = 0,0
removetime = -2
pausemovetime = 0
scale = 1,1
ontop = 1
removeongethit = 1
ignorehitpause = 1
persistent = 0[/mcode]

and is the explod in the fighfx.sff or your characters sff, if in the characters it needs to be S instead of F

You will need more than that trigger........
My Strider Hiryu uses this.

The triggers needed will be:

triggerall = movetype = A && enemynear,movetype = A
trigger1 = movehit && enemynear,movetype = H

and make sure you use ignorehitpause = 1 in the explod sctrl.

[State -3, Counter]
type = Explod
trigger1 = movetype = A && enemynear,movetype = A
trigger1 = movehit ;&& enemynear,movetype = H
anim = F350
pos = 0,0
postype = p1 
facing = 1
vfacing = 1
bindtime = 1
vel = 0,0
random = 0,0
removetime = -2
pausemovetime = 0
scale = 1,1
ontop = 1
removeongethit = 1
ignorehitpause = 1
persistent = 0

It probably does it outside of the KO hit, it's just more noticeable during a KO because mugen is moving in slow motion.

I'm gonna guess animation 5160. Try to bring it up on the Y axis about 10 - 20 pixels.

Change the zoffset parameter, not p1/p2starty.

Quote

[StageInfo]

zoffset = GROUND_Y

This parameter is the vertical distance of the ground level from the top of the screen, given in pixels. The parameter is inappropriately named, but has been left unchanged for compatibility purposes.

[PlayerInfo]
p1startx = -70
p1starty = -16
p1startz = 0
p1facing = 1

You have player.def which contains a line like

st = player.cns

Then you have darkplayer.def which contains a line like

st = darkplayer.cns

You redirect directly to these in the select.def by supplying the full path

player\player
player\darkplayer

1 - Copy the player's .def file and rename it darkplayer.def.

2 - In the select.def, direct to the darkplayer.def.

3 - Copy the .cns file you want to power up and o the powering up.

4 - Save the new .cns as darkplayer.cns

5 - In the darplayer.def, direct to that .cns.

sprite = ../player/player.sff   ;This is in "dark_player.def"