Written and copyright © 2010-2013 by Thomas N. Bulkowski. All rights reserved.
Dan Chesler (CMT, CTA) discovered the hikkake candlestick pattern and popularized it in two articles, "Trading false moves with the hikkake pattern," from Active Trader magazine, April 2004,
and "Quantifying market deception with the hikkake pattern," from The Technical Analyst, November 2004. I put it to the test and the following describes my findings for the hikkake
candlestick with confirmation.
Bullish Hikkake Important Results
I setup my program to find hikkake's based on the "Bullish Hikkake, Confirmed" pattern shown in the figure to the right. That includes the 3-bar hikkake and up to 3 additional
days for confirmation. However, all of the numbers assume that confirmation occurs when price closes above the top of the 3-bar candle or below the bottom of the 3-bar
hikkake pattern. That is how I measured the performance of all other candles.
Theoretical performance: Bullish when confirmed (but can act as a reversal or continuation)
Tested performance: Bullish continuation 52% of the time
Frequency rank: 16
Overall performance rank: 84 (1 is best out of 105)
Best percentage meeting price target: 60% (bull market, up breakout)
Best average move in 10 days: 4.97% (bear market, up breakout)
Best 10-day performance rank: 23 (bear market, up breakout)
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
Bullish Hikkake, Confirmed
Bullish Hikkake Discussion
The bullish hikkake candlestick pattern resembles a three inside down candle pattern but without the constraints. The bullish hikkake doesn't
require a rising price trend nor is candle color important as they both are in the three inside down candlestick.
In theory, the hikkake is supposed to be a bullish candlestick, but it can act either as a reversal or continuation of an existing price trend. That's what I found, too.
My numbers say the confirmed pattern is a continuation 52% of the time, with upward breakouts more than twice as likely to occur as downward ones (13,584 vs 6,416 samples).
That shouldn't be a surprise because price is probably closer to the top of the confirmed candle than the bottom.
The bullish hikkake is plentiful, so plentiful that I limited samples to 20,000. It ranks 16th out of 104 candle types, where 1 has the highest frequency.
The best average move 10 days after price closed above the top of the highest high or below the lowest low in the 3-bar candlestick was 4.97% in a bear market after an upward breakout.
That's short of the 6% or so that I like to see. That performance ranks 23rd where 1 is best out of 104 candles.
Bullish Hikkake Identification Guidelines
|Number of candle lines||Three.|
|Price trend leading to the pattern||None|
|Configuration||Look for an inside day (lower high and higher low compared to the prior day) followed by a lower high and lower low. Candle color is not important for
|Confirmation||Price must rise above the high of the inside day -- the second candle of the pattern -- in three days or less, after the candle ends. See the ideal picture
of "Bullish Hikkake, Confirmed" above. The red candle confirms the pattern on the third day when the high of that day rises above the blue line. The blue line touches the top of the
Bullish Hikkake Trading Tidbits
Here are some interesting facts my analysis turned up.
- Performance for tall hikkake candles is best in a bear market with gains or losses of almost 10% logged (meaning upward breakouts scored rises averaging 9.67% and downward
breakouts showed losses of 9.64%). Tall means taller than about 5% of breakout price divided by the height of the 3-bar pattern.
- Tall hikkake candles outperform the shorter ones in all combinations of bull and bear markets, up and down breakouts.
- Breakouts below a 50-bar exponential moving average result in better performance in bull markets after upward breakouts: 6.62% versus 5.90%.
- Once the three bars of the hikkake appear, place a buy stop above the highest high in the pattern (or above the high of the inside day) to buy into the pattern in a timely
- Chelser says a stop placed at the opposite end of the pattern works well. For upward breakouts, use the lowest low in the 3-bar pattern (I would put it a penny below the lowest
low). For downward breakouts, use the top of the pattern as a stop location.
Bullish Hikkake Example
The chart on the right shows a bullish hikkake in 3M (MMM). I show the candle in the inset and it appears above the blue line on the chart.
The first two days are the inside day followed by a lower low and lower high. Often, you will see price make a large move down on the third day like that shown here, but that
need not be the case. It could be a small candle providing both the high and low are below the prior candle's high and low, respectively.
The remaining candles are there for confirmation. When price rises above the top of the inside day (shown as candle B), it confirms the pattern as a valid hikkake candlestick.
Note that price need not close above the inside day, just post a higher high.
This chart shows the variation that I like to see, that of the hikkake in a downward price trend. The downtrend begins at candle A and it need not be a long downtrend, two days before
the hikkake begins in this case, but it works. Testing shows that if the very short term trend is downward leading to the confirmed hikkake candle, then performance improves.
The following table shows the performance as measured from the top or bottom of the 3-bar candle to the end of the trend.
|Market, Breakout Direction||Rising Trend||Falling Trend|
|Bull market, upward breakout||5.91%||6.47%|
|Bear market, upward breakout||6.75%||8.58%|
|Bull market, down breakout||4.60%||4.37%|
|Bear market, down breakout||7.24%||8.67%|
In all cases except for downward breakouts in a bull market, price trending down into the start of the hikkake results in improved performance. Also notice how well the pattern
does in a bear market, regardless of the breakout direction.
For trading, you can place a buy stop a penny above B once the 3-bars appear. That will get you in at a good price. Once in the trade, a stop placed below the bottom of the
hikkake would work well. I show that as C. Notice that the stop is not below the low of the 6 bar, but is below the low of the 3-bar hikkake. If the stop is too far away, then
either avoid the trade or use a volatility or other type of stop.
-- Thomas Bulkowski
Written and copyright © 2010-2013 by Thomas N. Bulkowski. All rights reserved. May your tongue stick to the roof of your mouth with the force of a thousand caramels.