Trading the Hikkake Pattern

The Hikkake pattern is a Japanese terminology and refers to ‘trick’. It was discovered by Daniel Chesler, CMT and has become a popular trading pattern for traders. The hikkake pattern can be identified most easily on a bar chart as well as on Point and Figure charts. It is purely based on price action and is used as a reversal to the trend as well as a continuation pattern, depending on where it appears on a chart. One of the simplicity of trading the Hikkake pattern is that it takes three price bars to identify the pattern and thus makes for a robust trading strategy. However, trading purely based off the Hikkake pattern isn’t profitable in itself. But when combined with existing methods, it can prove to be very valuable.

Understanding the Hikkake Pattern

The Hikkake pattern is made up of 2 or 3 bars (depending on how you count the bars). The basic foundation of the Hikkake pattern comes with identifying an inside bar pattern.

The inside bar pattern is a two bar formation where the second bar is formed completely inside the previous bar’s high and low. It is essential to understand that when talking about inside bar formation, we are only concerned with the High and Low prices. The body (open and close) should be within the previous bar’s High/Low but it doesn’t matter how the body shapes up to be.

To summarize, an inside bar is formed when the high and low is formed within the high and low of the previous bar.

Traders often tend to confuse inside bars with a bullish or a bearish harami pattern. While the Hikkake pattern also works with the harami patterns, for the sake of simplicity, we’ll first cover the basic hikkake pattern and then delve into the hikkake pattern formed on the harami formation.

The chart below gives examples of the inside bar formation.

Inside Bar Examples
Inside Bar Examples

The Hikkake pattern requires a third price bar to validate a bullish or a bearish hikkake pattern. For a bullish hikkake pattern, the second candle after the inside bar must have a lower low and a lower high compared to the inside bar’s high and low. The third candle must then close above the high of the inside bar.

For a bearish hikkake pattern, the second candle after the inside bar must have its high/low above the inside bar’s high/low. The third candle must then make a close below the inside bar’s low.

The following examples illustrate a bullish and a bearish hikkake pattern.

Bullish Hikkake Set Up Example

Bullish Hikkake Pattern Set Up
Bullish Hikkake Pattern Set Up

Bearish Hikkake Set Up Example

Bearish Hikkake Pattern Set Up
Bearish Hikkake Pattern Set Up

Hikkake Pattern for confirmation

As with any candlestick or bar pattern, there is no default trading strategy with the Hikkake pattern. In other words, it is difficult to set the take profit levels by merely using the Hikkake pattern. While this might be a deterrent, the Hikkake pattern can be used in conjunction with other trading strategies. For example, spotting a bearish hikkake pattern at the high or low of an RSI divergence set up or spotting the hikkake pattern near the upper or lower Bollinger Bands can be used to take some high probability trades. If the set up provides a tight risk, then based on the underlying trading strategy, the profits can be doubled or even triples.

Another aspect about the Hikkake pattern that makes it unique is that it can occur on any time frame. However, it is advisable for traders to check for any Hikkake patterns on the monthly/weekly and daily charts and trade only those hikkake patterns that are in the same direction of the higher time frames.

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