Hikkake pattern

Content sourced from Wikipedia, licensed under CC BY-SA 3.0.

The hikkake pattern is a technical analysis setup used to spot potential market reversals or continuations. It can be seen on many chart types, including traditional bar charts, point-and-figure charts, and Japanese candlesticks. It isn’t part of the traditional candlestick patterns. While some people call it an "inside day false breakout" or a "fakey," the term hikkake is the one most authors use.

The pattern forms after a period of rest and lower volatility, followed by a short price move that tempts traders to assume a direction. Once the pattern is formed, it provides trading parameters for when to enter, where to place stops, and the expected profit target. It is not a standalone trading system but a technique to use alongside other technical and fundamental analysis.

There are two versions: bearish and bullish. In both, the first bar is an inside bar (its high and low lie within the previous bar’s range). The second bar then appears: for the bearish variant it has both a higher high and higher low, and for the bullish variant it has both a lower high and lower low. Confirmation comes when price moves below the first bar’s low in the bearish case, or above the first bar’s high in the bullish case, and this confirmation must occur within three periods of the last bar for the signal to be valid.

The hikkake pattern was introduced by Daniel L. Chesler, CMT, who chose the name from a Japanese verb meaning to trick or ensnare. It has been adopted in market analysis tools and is taught by chart-pattern educators and institutions around the world, attracting international attention in the financial community.