What is the Hikkake Pattern

The hikkake pattern is a charting formation used by technical traders which are used in identifying the market's direction, often turning-points or continuation of trends. When using Japanese candlestick charts, the hikkake pattern is identified by its resemblance to an inside bar pattern, where the range of a new point or bar falls outside a previous point or bar. This breakout can be reflective of both a bullish or bearish outlook, depending on the direction of the breakout (above or below a previous high or low).

The pattern is considered somewhat of a specialized version of a candlestick chart. It is not often regarded as a traditional charting pattern or standalone trading system.

BREAKING DOWN Hikkake Pattern

From a Japanese word meaning "hook, catch, ensnare," hikkake was first described by Daniel L. Chesler, CMT. When traders are committing capital to a market only to see it move away from what they expected, what is described in charts is a hikkake pattern, giving the impression the market has hooked or tricked traders into thinking the market was moving in a particular direction.

From a conceptual basis, the hikkake pattern is made up of a notable length of little market volatility, followed by a brief jump in asset prices which intice traders into thinking a break-out is forming. This why the hikkake pattern has earned the nickname "inside day false breakout" or a "fakey pattern."

A basic trading strategy using the hikkake pattern would work something like this. A trader would set up a pending stop entry order near the inside bar’s high or low. The stop-loss is set to the high (for a bearish hikkake) or the low (for the bullish one) of the pattern’s second bar. The take-profit level is established based on a trader’s preference. Additionally, increments of the stop-loss value work well, and a trailing stop is another option to refine a position.