The Hikkake (pronounced Hĭ‑KAH‑kay) is a short‑term price pattern used by technical traders to identify potential reversals after a brief, deceptive breakout. Developed by Daniel L. Chesler, CMT, and described publicly in 2003, the pattern is intended to “hook” or “ensnare” traders who enter on an apparent breakout, then reverse and move in the opposite direction. The name hikkake is a Japanese word meaning “hook” or “catch.” (Source: Investopedia)
Key takeaways
– The Hikkake is a short‑term setup that relies on a low‑volatility contraction followed by a false breakout and then a reversal.
– It has two variants: bullish (implies upside continuation after the false breakout) and bearish (implies downside continuation).
– Traders typically use a small sequence of bars/candles to identify the setup, then wait for a specific follow‑through trigger to enter.
– Like all technical patterns, it is probabilistic, not certain—backtesting and risk controls are essential.
How the Hikkake pattern works (conceptual)
1. Contraction (inside/low volatility structure): Price forms a compact area of trading—often an “inside bar” or a small range relative to recent bars—indicating reduced volatility and indecision.
2. Apparent breakout: Price appears to break out of that small range (to the upside or downside). This entices traders to enter in the breakout direction.
3. Failure/reversal: The breakout fails and price reverses direction—trapping those breakout traders and triggering stops.
4. Confirmation/forecast: A subsequent move (commonly the next few bars) completes the pattern and implies a continuation in the reversal direction.
Essential characteristics
Different authors and traders use slightly different precise rulesets, but the typical elements you should check for are:
– A small or “inside” price bar (reduced-range bar) that is contained within the prior bar’s range or is narrow relative to recent bars.
– A breakout move beyond the inside/narrow bar’s high or low (this is the luring move).
– A quick reversal where price moves back into/through the narrow range rather than continuing the breakout.
– A confirmation rule (commonly: a subsequent price move or close beyond the extreme of the reversing bar(s)) that signals the trade direction for a short‑term move.
Bullish vs. bearish setups
– Bullish Hikkake: The false breakout is initially to the downside (price drops below the small range), then reverses and pushes higher. The confirmation entry is typically a break above a defined resistance (for example, above the high of the bar that made the false breakout or another designated bar).
– Bearish Hikkake: The false breakout is initially to the upside (price rises above the small range), then reverses and pushes lower. The confirmation entry is typically a break below a defined support level (for example, below the low of the bar that made the false breakout or a subsequent bar).
Practical steps to identify and trade a Hikkake pattern
Below is a practical, conservative workflow you can use as a starting point. Adjust the exact bar definitions and confirmation time window to fit your timeframe (intraday, daily, weekly).
1) Identify the initial contraction
– Look for an “inside” or narrow‑range bar that shows lower volatility compared with the bars immediately before it. This will be your reference bar (call it Bar A).
2) Spot the luring breakout
– Observe Bar B (the bar immediately following Bar A). Bar B should move outside Bar A’s range in one direction (above the high or below the low), suggesting a breakout.
3) Confirm the false breakout / reversal
– For a Hikkake, the breakout does not hold. Price reverses and either closes inside Bar A’s range or reverses through a relevant boundary (for example, back inside Bar A or beyond Bar B’s opposite extreme).
– Many traders allow a small time window—e.g., if within the next 1–3 bars price reverses and meets the reversal condition, consider the pattern in play.
4) Wait for the entry trigger (confirmation)
– Conservative entry: Wait for price to move beyond the extreme of the bar that reversed the breakout (e.g., entry on a close above the high for bullish, or below the low for bearish).
– Aggressive entry: Enter immediately upon seeing the reversal back into the range (higher risk of false signals).
5) Position sizing and stop placement
– Stop-loss: Place a stop on the other side of the structure. Common choices:
• For bullish entry: stop a few ticks/pips/cents below the low of the reversal bar or below Bar A’s low.
• For bearish entry: stop a few ticks/pips/cents above the high of the reversal bar or above Bar A’s high.
– Use risk-based sizing so that the dollar risk per trade is a consistent portion of account equity (e.g., 0.5–2% per trade).
6) Targets and exits
– Fixed risk-reward: set a profit target at a multiple of risk (e.g., 1.5×–3× the stop distance).
– Structure‑based: target recent support/resistance levels or measured moves (for example, the distance of the prior range).
– Trailing exit: move the stop to breakeven after a certain profitability threshold and trail the stop to lock in gains.
7) Confirmation filters (optional but helpful)
– Volume: rising volume on the reversal/confirmation can strengthen the signal.
– Trend context: use moving averages or higher‑timeframe trend to bias trades (e.g., favor bullish Hikkake patterns that occur near a rising trend).
– Momentum indicators: RSI/stochastic turning in the confirmation direction can add conviction.
Example (descriptive)
Investopedia highlights a Microsoft (MSFT) example where a bullish Hikkake setup formed: a small boxed area of low volatility, followed by a downside breakout that reversed and produced a subsequent upward move consistent with the pattern’s forecast. The site notes that the pattern plays out in the expected direction slightly more than half the time it occurs—underscoring that it is a probabilistic tool, not a certainty.
Practical scanning / detection pseudocode
This pseudocode is a starting template for a scan; refine the exact bar definitions to your style and timeframe.
• For each instrument, for each day (or candle) t:
1. Let A = candle at t (candidate inside/narrow bar)
2. Require range(A) high(A) then breakout = “up”; else if low(B) < low(A) then breakout = “down”; else continue
4. Check t+1..t+M for a reversal: if breakout == “up” and within M bars price closes below high(A) or closes below low(B) then mark possible bearish Hikkake; if breakout == “down” and within M bars price closes above low(A) or above high(B) then mark possible bullish Hikkake
5. Entry trigger: wait for price to close beyond the extreme of the reversal bar (e.g., close above reversal bar high for bullish)
6. Place stop and size position per risk rules
Backtesting and evaluation
– Backtest the exact rules (inside definition, breakout distance, confirmation window, stop placement, take profit) on historical data for your chosen timeframe.
– Evaluate win rate, average win/loss, maximum drawdown, and expectancy (expected return per trade).
– If behavior varies by instrument/timeframe, tune parameters per market rather than assuming universal performance.
Limitations and practical cautions
– The Hikkake is a short‑term pattern—signals are often only valid for a few bars or days.
– It’s a probabilistic setup: Investopedia notes it’s correct slightly more than 50% of the time in their example context. Expect false signals.
– False breakouts are common in low‑liquidity conditions and on choppy markets—use filters (volume, trend) or avoid during news events.
– Transaction costs and slippage can materially affect profitability on short setups—factor them into backtests.
Sample simple trade checklist (ready to use)
1. Identify narrow bar (Bar A) contained within recent range.
2. Observe breakout bar (Bar B) that moves outside Bar A.
3. See reversal back into Bar A or past Bar B’s opposite side within 1–3 bars.
4. Enter on confirmation (e.g., close beyond reversal bar’s extreme).
5. Place stop on opposite side of pattern; size to risk X% of account.
6. Set profit target or use a trailing stop; exit per your plan.
7. Log the trade and results for continuous improvement.
Variation and customization ideas
– Use inside-bar definitions (Bar A contained within previous bar) for a strict Hikkake.
– Expand the lookback and average‑range thresholds for different timeframes (intraday vs daily).
– Combine with higher‑timeframe trend: only take bullish Hikkake signals in an uptrend, bearish in a downtrend.
– Use options (for equities) to limit downside if you prefer defined risk without forced stop orders.
Conclusion
The Hikkake pattern is a compact, short‑term setup built around a false breakout and a rapid reversal. It can produce useful entries when paired with strict confirmation, risk management, and filters (volume, trend). Because it’s probabilistic and relatively simple, disciplined backtesting and consistent position sizing are essential before implementing it with real capital.
Sources and further reading
– Investopedia: “Hikkake Pattern”
– Daniel L. Chesler, CMT — originator of the Hikkake concept (first described publicly in 2003).
Not investment advice
This article is for educational purposes only and is not financial, tax, or investment advice. Always test strategies on historical data and paper trade before risking real capital.