If you have a character with armored moves when he's trying to use his square moves at mid range use your armored attacks to bust through his.
If you have a character with ranged attacks just keep him away, Kratos hasn't got any good long range attacks so if you can keep your distance characters like Radec and Ratchet can give him a hard time.
Nice! We are actually getting somewhere. Im just gonna say what I do and it might be quite similar. Kratos can combo into his lv 1 with that head thingy. Im pretty sure he is gonna miss a couple times too. Thats the perfect time to counter a lv 1 against him. I fought Kratos on red difficulty in versus and he does not play like the people do online. A great way i beat him is to PARRY and block a crap ton. I think without a doubt Kratos will most like go lv 1 or lv 3. No one plans for lv 2 unless they somehow get to it. To sum it all up Kratos has to get his attacked blocked and then punished. The thing about his forward square is that unless your super close do not attack him back. If you cant reach him in a second he will continue his square attack again.