What Is the Hikkake Pattern?
Let me explain the hikkake pattern directly to you—it's a price pattern that technical analysts and traders use to spot a short-term shift in the market's direction. This pattern comes in two setups: one that points to a short-term drop in prices, and another that suggests a short-term rise.
Key Takeaways
You should know that the hikkake pattern helps identify short-term market moves, with setups for both downward and upward price actions. It works by playing on traders' expectations— they think the price is going one way, but when it reverses, they all exit together, pushing the reversal further.
Understanding the Hikkake Pattern
The hikkake pattern, pronounced Hĭ KAH kay, is a detailed bar or candlestick setup that starts moving in one direction but quickly reverses, forecasting a shift the other way. Daniel L. Chesler, CMT, introduced it in 2003. I'll break down its four key points for you.
The pattern begins with two candles or bars of decreasing size, forming an inside-day or harami pattern. It doesn't matter if they close up or down, as long as the first candle's body fully engulfs the second's.
Then, the third candle closes below the low of the second candle in the bearish setup, or above the high in the bullish one.
Next, one or more candles drift below or above the third candle and start reversing.
Finally, the last candle closes above the high of the second candle in the bullish case, or below its low in the bearish one.
When that fourth point hits, the pattern signals a continuation in the final candle's direction. I've seen charts showing both setups—the bullish one is more common, while the bearish appears less often.
The name 'hikkake' comes from Japanese for 'hook, catch, ensnare.' Chesler noticed it traps traders who commit money expecting one move, only for the market to go against them.
Conceptually, it involves a brief drop in volatility, then a breakout that lures traders in. They set stops in the opposite direction, and if it reverses, those stops trigger, boosting the price past the second candle's boundary where stops cluster.
Example of a Hikkake Pattern
Take this example from Microsoft's (MSFT) shares—it's a typical bullish hikkake setup that matches all four characteristics. I've marked it in a rectangle on the chart, and it forecasts an upward move after the pattern ends. In this case, the price trended mildly up afterward, but remember, not every hikkake plays out correctly.
I want to remind you that this information isn't tax, investment, or financial advice. It's general and doesn't consider your specific objectives, risk tolerance, or situation. Investing carries risks, including potential loss of principal.
Other articles for you
Return on average assets (ROAA) is a financial metric that evaluates how effectively a company, especially in banking, uses its assets to generate profits.
A stock screener is a tool that helps investors filter stocks and ETFs based on custom criteria to identify trading or investment opportunities.
A perpetuity is a financial instrument that provides endless cash flows without an end date, used in valuation models despite being rare in practice.
The Upside Tasuki Gap is a three-bar candlestick pattern that signals the continuation of an uptrend.
Unitranche debt is a hybrid financing structure that merges senior and subordinated debt into one loan for borrowers in institutional deals.
The Guideline Premium and Corridor Test (GPT) determines if a life insurance policy qualifies for favorable tax treatment as insurance rather than an investment by limiting premiums relative to the death benefit.
The Inter-American Development Bank (IDB) is a cooperative institution providing financial and technical support for economic and social development in Latin America and the Caribbean.
The technology sector includes companies focused on research, development, and distribution of tech-based goods and services, driving innovation and investment.
Underwriting capacity refers to the maximum liability an insurance company can assume to manage risks without facing insolvency.
A good faith estimate (GFE) is a document outlining estimated costs and terms for reverse mortgages to help borrowers compare lenders.