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Hikkake Chart Pattern

December 12, 2011

Introduction to Hikkake

I am currently reading the Diary of a Professional Commodity Trader by Peter Brandt and among other good things found a mention of a hikkake pattern there. Hikkake is often called a Japanese candlestick pattern, but in reality it can be used with the common bar chart too as it doesn’t rely on the Open and Close levels.

Hikkake was first described by the famous commodities trader Daniel Chesler in April 2004 article in the Active Trader magazine. Hikkake translated from Japanese means “to trap” or “to ensnare”. It’s a false breakout pattern that tries to work out the failed inside day pattern. It’s both continuation and reversal pattern in terms that it can be met inside a bullish/bearish trend and offer a buy/sell trade opportunity; it can also be met inside a bullish/bearish trend and offer a sell/buy trade opportunity.

Hikkake Details

The pattern consists of 2 bars (though the first one also relies on a previous bar). The first bar (blue one, on the images below) is the inside bar — its high should be lower than the previous bar’s high and its low should be higher than the previous bar’s low. The second bar (magenta) should have either higher high and higher low for a bearish hikkake or lower low and lower high for a bullish hikkake. These two bars offer a hikkake setup, which is triggered if any of the next 3 bars breaks through the high of the inside bar (for a bullish hikkake) or through its low (for a bearish hikkake):

Bullish Hikkake Pattern

Bearish Hikkake Pattern

Bullish Hikkake Bearish Hikkake

The shown patterns demonstrate a breakout line (dashed), which is violated by the second bar after the pattern is completed, triggering the trade signals.

As you see on the chart, the direction of the bars (Open/Close relation) doesn’t matter. Hikkake pattern is particularly good for Forex traders because it doesn’t take into account the Open/Close of the candles, which offers unspoiled performance in the foreign exchange market, which closes and opens only once a week.

Trading

Trading strategy involving the hikkake pattern is evident from the above examples. A trader sets 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 to the low (for the bullish one) of the pattern’s second bar. Take-profit level can be set according to the trader’s preference. Increments of the stop-loss value (1×SL, 2×SL or 3×SL) work well, and trailing stop is another option.

Hikkake Trading Examples

Let’s look at some real life examples of the hypothetical hikkake trades. The inside bars are colored blue, the second hikkake bars are colored with magenta. Bright green bars are the inside bars that weren’t followed by a higher high + higher low or lower low + lower high bars and thus didn’t form a valid hikkake.

The examples shown on the first chart are from the November 2006 — March 2007. I didn’t try to hand-pick the best patterns — they represent the average species of the chart pattern. Patterns A and D are not triggered by any of the three bars following the hikkake formation. Pattern B is triggered on the next bar and in two days reaches its target of 1×SL (stop-loss). Pattern C was triggered by the second post-formation bar and after 5 days it has reached a target of 1×SL.

Hikkake Example Trades on GBP/USD Daily Chart

The second chart shows examples from March-June 2007 period. This chart is actually rich on hikkake, especially those that never trigger. Patterns A, C, D, G, H, I and J fail to trigger. Pattern B shoots on the second day and the 1×SL target is fulfilled on the fourth day. Pattern E turns out to be a long-term one — although it’s triggered on the first day, the take-profit level isn’t reached until day 13. Pattern F is quite unlucky — it gets both triggered and stopped out on the day #1. It’s the only loser (with a rather tight stop-loss, I must say) in all two charts.

Even More Hikkake Example Trades on GBP/USD Daily Chart

Conclusion

Hikkake is far from being a bullet-proof pattern. It also doesn’t offer too much trading opportunities. Nevertheless, it’s a flexible chart figure that offers a chance to trade using pending orders and it haв proved to be reliable enough to be looked for.

If you have any questions or comments regarding the hikkake chart pattern, please feel free to reply via the form below.

7 Responses to “Hikkake Chart Pattern”

  1. dan chesler

    very nice! thank you for the mention and good chart examples.

    Reply

    admin Reply:

    Thanks for the pattern ;-)!
    By the way: the backtest of the patterns on longer periods showed rather poor results. But that, of course, depends on the actual trading system used with the Hikkake pattern.

    Reply

  2. dan chesler

    you are probably correct. i dont think there are many patterns that show good results when tested as stand-alone systems. peter brandt (search amazon for his book) has had a very long and successful trading career. he’s a technical pattern trader. yet only a small fraction of his trades make money. i.e., if someone tells you they have a single pattern that “works,” be very skeptical.

    Reply

    admin Reply:

    Yeah, I’ve read Peter Brandt’s book (that’s where I first read about Hikkake pattern). Makes a point.

    Reply

  3. dan chesler

    ah! ok, tks. i see it now in your text sorry. getting older here, brain not what it used to be!

    Reply

  4. stefan martinek

    The backtest of the Hikkake pattern on the large futures portfolio (1980-2014) http://www.oxfordstrat.com/trading-strategies/hikkake-pattern/

    Reply

    Andriy Moraru Reply:

    Thanks for sharing! A good test, but I would like to see the results in a more readable form – a huge sortable table for each tested futures would be nice.

    Are results prone to long/short position bias? I could not find any charts with trade symmetry stats. Did you detrend the history data?

    Did you try eliminating the data mining bias from your results and calculating the statistical significance of the obtained results?

    Reply

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