Understanding the Hikkake

What is the Hikkake?

The Hikkake pattern is a reversal pattern used to signal potential trend changes. It is characterized by a false breakout or "trap" where the price initially moves in the direction of the breakout but then reverses, trapping traders who entered on the breakout.

How is the Hikkake Identified?

The Hikkake pattern is identified by:

1. Initial Breakout: A breakout above or below a key level (such as a previous high or low).
2. False Breakout: The price initially moves in the breakout direction but then reverses back, engulfing the breakout candle.

When to Use the Hikkake

The Hikkake pattern is used to:

• Identify Reversals: It can signal a reversal after a false breakout, especially when the price fails to sustain the breakout move.
• Confirm with Other Indicators: Combining this pattern with other technical indicators can enhance its reliability.

Formula Example

To identify the Hikkake pattern:

1. Check for Breakout:
   • Condition: The price breaks above a recent high or below a recent low.
2. Verify Reversal:
   • Condition: The price then reverses and closes in the opposite direction of the breakout, often engulfing the breakout candle.

For example:

• Initial Breakout: Price breaks above a recent high.
• Reversal Candle: The price then closes below the breakout level, indicating a potential Hikkake pattern.

Parameters

The parameters for identifying the Hikkake pattern include:

• Data: Defines the type of data to use for the pattern.

  • Value: ohlc
  • Description: The pattern uses Open, High, Low, and Close prices.

• Previous N Candles: Number of preceding candles to check.

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Checks for the Hikkake pattern in the last N candles.

• Pattern Type: Specifies whether to identify the pattern as bullish or bearish.

  • Default Value: :bullish
  • Drop Display Values: Bullish, Bearish
  • Drop Down Values: :bullish, :bearish
  • Description: Determines the type of Hikkake pattern to identify.

Conclusion

The Hikkake pattern is useful for identifying potential reversals following false breakouts. It can help traders recognize trap setups and adjust their strategies accordingly.