My book, Encyclopedia of Candlestick Charts , covers over candlestick types but not the hikkake. Dan Chesler CMT, CTA discovered the hikkake candlestick pattern and popularized it in two articles, "Trading false moves with the hikkake pattern," from Active Trader magazine, April , and "Quantifying market deception with the hikkake pattern," from The Technical Analyst , November I put it to the test and the following describes my findings for the bearish hikkake candlestick with confirmation. The above numbers are based on hundreds of perfect trades.
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The modified hikkake pattern is a less frequent variant of the basic hikkake pattern and is viewed as a reversal pattern. Therefore, the modified version consists of a context bar, an inside bar, a fake move, followed by a move above bullish or below bearish the inside bar high or low, respectively. If a bearish hikkake pattern triggers a short trade, a stop loss can be placed above the high of the pattern. If a bullish hikkake pattern triggers a long trade, a stop loss can be placed below the low of the pattern.
Traders should use the modified hikkake pattern in conjunction with other forms of technical analysis, such as chart patterns or technical indicators, to maximize their odds of success. For example, a trader could look for a bullish hikkake pattern to form during a pullback within a longer-term uptrend. The bullish hikkake may signal the end of the pullback and the re-emergence of the uptrend.
The context bar closes near the high for that period, but the overall range is smaller than the prior price bar. Then an inside bar appears, showing a pause in the buying. On the next bar, there is a push higher, with a higher high and higher low. The modified hikkake is in play, with a sell or short order placed below the inside bar low.
Right now the bulls are confident, but if the price drops below the inside bar, it could trigger a cascade of selling as those who recently bought begin to question their decision based on the recent drop. This is why the pattern is considered a reversal signal if the price drops below the low of the inside bar.
The bullish pattern occurs as prices are pushing lower. The context bar closes near the low of the period, leaving the bears feeling confident. The range of this period is smaller than the prior period though. An inside bar forms, causing some indecision.
The bears push the price lower the following period, creating a lower low and lower high. The bullish reversal pattern is in play if the price rises back above the inside bar high. All those bears who recently sold will be "trapped" and could add fuel to the buying that follows. This is why the pattern is considered a reversal signal if the price rises above the inside bar high. The modified hikkake pattern is relatively rare to spot.
The following pattern isn't perfect as the context bar closes more toward the middle of the candle instead of near the low. Everything else in the pattern aligns with the psychology of the pattern. Macy's M daily chart was pulling back within a longer-term uptrend. There is a sharp drop followed by a smaller price bar which is the context bar. In this case, it closed near the middle of the candle.
Overall though, we can see that bearish confidence is strong due to the recent price drops, which is an important part of the pattern. The next day is the inside bar. Following the inside day, the price moves lower. Four sessions later, the price rallies back above the inside candle high. At this point, a long trade could be initiated with a stop loss below the pattern low or as determined by the trader. The price, in this case, does continue to move higher and the trader could take profit based on their method.
The modified hikkake and the basic hikkake both have elements of a false breakout in that the price moves one direction following the inside bar, but then it hooks the other way. A false breakout is similar, except that it can occur anytime there is an identified support or resistance level. The price moves through the level, only to quickly reverse course in the other direction. The modified hikkake has rather stringent criteria, so it isn't a common pattern.
Opportunities to trade based on the pattern are limited. While the entry point and stop loss are clearly defined with the pattern, implementing profit-taking measures is up to the trader, as the pattern doesn't provide a profit target.
It should not be assumed that the price will break out in the expected direction. The basic hikkake can result in a reversal or continuation of the prevailing trend. Technical Analysis Basic Education. Advanced Technical Analysis Concepts.
This followed by an inside bar, then a candle with a higher high and higher low. The pattern completes when the price drops below the inside bar low. The bullish version consists of a context bar that closes near the low but has a smaller range than the prior candle. This followed by an inside bar, then a candle with a lower high and lower low. The pattern completes when the price rises above the inside bar high. From here, two versions of the hikkake pattern can develop, a bullish and bearish version.
If the next price bar after the inside bar has a higher high and higher low, this sets up a potentially bearish pattern. A short entry, or sell, is placed just below the low of the inside day. If the next price bar after the inside bar has a lower high and lower low, this sets up a potentially bullish pattern. A buy order is placed just above the high of the inside day. The rest of the trading guidelines remain the same.
There are two versions of the pattern, let's look at the bearish version first. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
Related Terms Unique Three River Definition and Example The unique three river is a candlestick pattern composed of three specific candles, and it may lead to a bullish reversal or a bearish continuation.
Counterattack Lines Definition and Example Counterattack lines are two-candle reversal patterns that appear on candlestick charts. There are both bullish and bearish versions.
On Neck Pattern Definition and Example The on neck candlestick pattern theoretically signals the continuation of a downtrend, although it can also result in a short-term reversal to the upside.
Harami Cross Definition and Example A harami cross is a candlestick pattern that consists of a large candlestick followed by a doji. Sometimes it signals the start of a trend reversal. Hikkake Pattern Definition The hikkake pattern is a technical analysis chart used in identifying the market's direction, often turning-points or continuation of trends. Partner Links. Related Articles.
The hikkake pattern , or hikkake , is a technical analysis pattern used for determining market turning-points and continuations. It is a simple pattern that can be observed in market price data, using traditional bar charts , point and figure charts , or Japanese candlestick charts. The pattern does not belong to the collection of traditional candlestick chart patterns. Though some have referred to the hikkake pattern as an "inside day false breakout" or a "fakey pattern",  these are deviations from the original name given to the pattern by Daniel L. Chesler, CMT and are not popularly used to describe the pattern.
Hikkake Pattern by Daniel Chesler
Chesler, CMT and are not popularly used to describe the pattern. No information on this site is investment advice or a solicitation to buy or sell any financial instrument. Past performance is not indicative of future results. Trading may expose you to risk of loss greater than your deposits and is only suitable for experienced investors who have sufficient financial means to bear such risk. PRC is also now on YouTube, subscribe to our channel for exclusive content and tutorials. Thanks Violet for your sharing.
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