Bullish Hikkake – Candlesticks Pattern and Technical Analysis (Meaning, definition and backtest Analysis)

Among the various candlestick patterns used in technical analysis, those that involve three or more candlesticks are usually held in high regard by traders, and the Bullish Hikkake pattern is one of them. The bullish Hikkake is used to recognize short-term upward movements of the price, which can be both a continuation of the trend or a reversal.

The Bullish Hikkake pattern refers to a two-bar pattern where the first bar completely overshadows the body of the second bar

The bullish Hikkake candlestick pattern does occur quite frequently on candlestick charts, and traders consider it a reliable trend reversal indicator and use it to time their trades. So, here, we will discuss the main things you need to know about the bullish Hikkake pattern

These are the things you can learn from this post:

What the bullish Hikkake pattern is
How to identify the pattern
How to interpret it
The psychology behind the pattern
How to trade it
The limitations of the pattern
Comparing bullish Hikkake with a false breakout

Table of contents:

What is the bullish Hikkake pattern?

The Hikkake pattern derives its name from a Japanese word that means “hook, catch, ensnare.” The Hikkake pattern was first described in the Western world by Daniel L. Chesler, CMT, when he was trying to describe a pattern that seemed to trap traders in one direction while turning to move in the other direction. The Hikkake pattern is a multi-candlestick pattern, with at least three candlesticks but can be up to seven. Most commonly, it consists of four or five candlesticks. There are two types of the Hikkake pattern — the bullish Hikkake and the bearish Hikkake — but in this post, we are focused on the bullish Hikkake pattern.

The bullish Hikkake pattern consists of the harami pattern (inside bar), a fake move to the downside, and a reversal move with a breakout above the harami pattern’s high. It is like a three inside down candlestick pattern but without the constraints — it doesn’t require a specific type of trend, and the candle color doesn’t matter. While the bullish Hikkake pattern gives a bullish signal, whether the signal indicates a price reversal or continuation of an existing trend depends on where the pattern forms. A Hikkake pattern in a downswing can indicate a bullish reversal, while a Hikkake pattern in an upswing indicates a continuation of the uptrend.

In terms of market activity, the bullish Hikkake pattern is made up of a short-term decrease in market volatility, followed by a breakout move in the downward direction. This breakout move, most likely by the third candlestick in the pattern, tends to entice traders into thinking a breakdown is in play. They enter the market and set their stop loss above the upper end of the pattern. The price then reverses and moves upward, breaking above the upper end and triggering traders’ stop loss orders, which further enhances the upward movement. No wonder the Hikkake pattern is often referred to as a “fakey pattern” or an “inside day false breakout”.

The Hikkake pattern is used by traders and technical analysts for determining market continuations and turning-points. It is a simple pattern that can be seen in market price data, using point and figure charts, traditional bar charts, or Japanese candlestick charts. It is not a traditional candlestick chart patterns.

The anatomy of the bullish Hikkake trading pattern: how to identify the pattern

The Hikkake pattern is a complex bar or candlestick pattern that starts to move in one direction but quickly reverses and establishes a new move in the opposite direction. It is formed over several trading sessions, so it is a multi-bar/candlestick pattern. The pattern usually consists of three to seven price bars, but most commonly, four or five. The important features of the pattern are as follows:

The pattern can be seen in any price trend and swing — downswing or upswing.
The first price bar, often called the mother bar, is long and can be of any color.
The second price bar, often called the inside bar, is smaller than the first one and its range lies within the first bar’s range.
These first two price bars form what is known as the inside bar pattern or harami candlestick pattern — it doesn’t matter if this day closes lower or higher than it opened, so long as the body of the first candle completely overshadows the body of the second.
The third price bar extends downward, below the low in the first setup (the inside bar pattern). This price bar can close bearishly or bullishly, and in rare cases, it can climb higher to close above the high of the second price bar, thereby completing the bullish Hikkake pattern.
The next price bars depend on how the third price bar closed. They are mostly bullish bars moving upward to break above the high of the second bar.
The last price bar in the pattern is the one that closes above the second bar’s high.

After completing the pattern, the price is likely to continue moving upward. In essence, the bullish Hikkake pattern is consists of an inside bar pattern, a downward fake-out, and a bullish reversal move that breaks above the inside bar pattern. The direction of the preceding price move does not matter.

Interpreting the bullish Hikkake pattern

The bullish Hikkake pattern gives you a bullish signal, irrespective of the price trend where it occurs. However, the nature of the price trend where it is formed determines whether it gives a bullish reversal signal or a bullish continuation signal. When the pattern occurs against a support level at the end of a downward price swing, the bullish Hikkake pattern indicates a possible price reversal to the upside, but if the pattern forms in an upward price swing, the indication is that the price is likely to continue rising.

As the name implies — “catch, hook, or ensnare” — the Hikkake pattern tries to trap traders with a downward fakey. In fact, when the pattern was first described, the founder was looking to describe a pattern he had noticed that seemed to trap traders investing in the market only to see it move away from what they expected. In the case of the bullish pattern, short-sellers and inexperienced buyers are faked out with the downward breakout of the inside bar pattern within the Hikkake. With the false breakout, some buyers rush to dump their positions while short-sellers quickly entered their sell orders, thinking that the market will drop.

Then, the price reverses and starts climbing up. Before you know it, it takes out the high of the inside bar pattern, forcing the short sellers to cover their shorts. What you get is a genuine breakout in the upward direction, signaling that the intention of the market all along is to move higher and not lower.

Although not as common as the inside bar pattern, the Hikkake pattern offers a more reliable signal, and here is why: It has shown a price rejection in the opposite direction, so the chances of price moving in the new breakout direction are quite high.

The psychology behind the bullish Hikkake pattern

The psychology behind the bullish Hikkake pattern is that of accumulation or re-accumulation of long positions in readiness for