Hikkake Pattern: Understanding, Mechanics, And Illustrations

What is the Hikkake Pattern?

The Hikkake Pattern is a technical analysis pattern that is used to identify potential reversals in market trends. It is a relatively lesser-known pattern compared to other popular patterns like the Head and Shoulders or Double Top, but it can still be a valuable tool for traders.

The word “Hikkake” is derived from the Japanese word for “trick” or “trap,” which is fitting because the pattern is designed to trap traders who are expecting a continuation of the current trend.

Characteristics of the Hikkake Pattern

The Hikkake Pattern consists of three key components:

1. A false breakout
2. An inside bar
3. A breakout in the opposite direction

The pattern begins with a false breakout, where the price briefly moves beyond a key support or resistance level, only to quickly reverse and move back within the range. This false breakout is often seen as a sign of weakness in the current trend.

After the false breakout, the price forms an inside bar, which is a bar that has a lower high and a higher low than the previous bar. This inside bar indicates a period of consolidation and indecision in the market.

Finally, the pattern is confirmed when the price breaks out in the opposite direction of the initial breakout. This breakout is seen as a reversal signal, indicating that the previous trend is likely to reverse.

Using the Hikkake Pattern in Trading

Traders can use the Hikkake Pattern to identify potential reversals and take advantage of the subsequent price movements. When the pattern is confirmed, traders can enter a trade in the direction of the breakout, placing a stop loss below the low of the inside bar.

It is important to note that like any technical analysis pattern, the Hikkake Pattern is not foolproof and should be used in conjunction with other indicators and analysis tools. Traders should also consider factors such as market conditions, volume, and overall trend before making trading decisions based on the Hikkake Pattern.

Hikkake Pattern: Mechanics

The Hikkake pattern is a technical analysis pattern that is used by traders to identify potential reversals in price trends. It is a relatively simple pattern that can be used in conjunction with other technical indicators to improve trading decisions.

The mechanics of the Hikkake pattern involve three key components: a false break, an inside bar, and a break of the inside bar. Let’s break down each component:

1. False Break:

2. Inside Bar:

After the false break, the price of the asset forms an inside bar. An inside bar is a bar or candlestick pattern where the high and low of the bar are contained within the high and low of the previous bar. This indicates a period of consolidation or indecision in the market.

3. Break of the Inside Bar:

The final component of the Hikkake pattern is the break of the inside bar. This occurs when the price breaks out of the range of the inside bar, indicating a potential reversal in the price trend. Traders can use this break as a signal to enter a trade in the direction of the breakout.

It is important to note that the Hikkake pattern is not a foolproof indicator and should be used in conjunction with other technical analysis tools. Traders should also consider factors such as market conditions, volume, and other indicators to confirm the validity of the pattern.

How does the Hikkake Pattern work?

The Hikkake Pattern is a technical analysis tool used in trading to identify potential trend reversals. It is based on the concept of deception, where the market appears to be moving in one direction but then reverses, trapping traders who were expecting the continuation of the previous trend.

The pattern consists of three key components: an inside bar, a false break, and a breakout. The inside bar is a candlestick pattern where the high and low of the current bar are within the range of the previous bar. This indicates a period of consolidation or indecision in the market.

The false break occurs when the market breaks above or below the high or low of the inside bar but then quickly reverses and closes back within the range of the inside bar. This deceives traders who entered trades based on the initial breakout, leading to their positions being stopped out or their stop-loss orders being triggered.

The breakout is the final component of the pattern and occurs when the market breaks in the opposite direction of the false break. This signals a potential trend reversal and presents an opportunity for traders to enter trades in the new direction.

To better understand how the Hikkake Pattern works, let’s look at an example:

Date	Open	High	Low	Close	Pattern
Day 1	100	110	90	95
Day 2	97	105	92	100	Inside Bar
Day 3	101	115	95	112	False Break
Day 4	110	112	105	108	Breakout