There are many candlestick patterns a trader can recognise. They repeat themselves in time and this is a good base for predicting the future price movements. With the help of the patterns, it is possible to find the best entry points for your trades. In this article, I would like to familiarise you with the Hikkake pattern.
Hikkake pattern overview
The Hikkake pattern in Japanese means “catch, hook, ensnare”. It was designed by Daniel L. Chesler, CMT. The first mention of it originates from 2003.
There are a few candles that form the Hikkake pattern. They grow in various directions. And they inform you about the course of the price in the near future.
We can name the Hikkake pattern as the bullish or bearish one. It will depend on the direction of the candles in the pattern. More often you will notice the bullish one.
It is most convenient to search for the pattern on the candlestick type of the chart. Though, you should be able to find it with the bar chart as well. When the pattern is fully developed, you can expect the price will take the course signalled by the last candle in the Hikkake pattern.
Let’s take a closer look at the candles in the Hikkake pattern. The first two candles are known as the Harami pattern or the inside-day (A). The initial one engulfs the second one completely. B is the candle which closing lies higher than the high or lower than the low of the preceding candle. The next candles will be below or above the previous candlestick (C). The last candle’s closing (D) is situated below the low of the second candle or above its high.
This is a general description of the candles in the Hikkake pattern. Now, let’s see how the bearish pattern differs from the bullish one.
The picture above represents the bearish Hikkake pattern. First, there is the inside-day. The second candle is immersed by the first one. The next candle’s closing lies higher than the high of the candle A. The following candles develop higher than the low of the candle B. The last candle’s closing is below the low of the A candle. This indicates, that the price will go downwards and you should enter a sell transaction.
The situation in the picture above looks quite opposite. The first candle engulfs the candle marked as A. The next candle’s closing is lower than the low of the candle A. The following candles appear lower than the high of the previous candle. The last candle’s closing is above the high of the second candle in the pattern. This gives information about upwards price direction and at the same time, produces a signal to enter a buy trade.
How to trade using the Hikkake pattern at Olymp Trade
Opening a sell position with the Hikkake pattern
I will use an example of the EURUSD chart. During the uptrend, a bearish Hikkake pattern has developed. You are surely able to recognise all four typical candles of the pattern. The last candle in the pattern informs that the price will change direction and move downwards. That is why you should enter a sell trade.
Opening a buy trade with the Hikkake pattern
You should enter a buy trade when you spot the bullish Hikkake pattern. Such a situation is presented in the USDJPY chart below. First few candles show a short drop in the prices. But then there is a breakout and the Hikkake pattern is soon completed. The last candlestick has confirmed that the price is going to rise. Enter a buy trade now.
It is a very useful skill to be able to recognise different patterns on the price chart. The Hikkake pattern helps you to identify the future direction of the price.
I recommend using a 5-minute time frame or longer. The thing with a 1-minute chart is that it is difficult to read, especially in the beginning, and may produce some false signals.
Remember about the Olymp Trade practice account. This is a perfect place to try trading with the Hikkake pattern for yourself.
Finally, I would like to encourage you to tell us what you think about the bearish and bullish Hikkake patterns. The comments section below is designed specifically for that.
Wish you success!
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