# Understanding the Hikkake Pattern: Identifying Market Trends

## What Is Hikkake Pattern?

The hikkake pattern is a technical analysis tool that traders use to anticipate short-term market movements. It involves setups where prices initially move downward or upward before reversing, often leading to a breakout. This pattern works by exploiting trader expectations and price behavior, helping traders make more informed decisions. The pattern originated as a recognized trading strategy and is valued for its ability to signal potential market reversals and guide short-term trading strategies.  

### Key Takeaways

*   The Hikkake pattern helps traders predict short-term market moves through a distinctive candle pattern setup.  
    
*   It consists of two setups: one indicating an upward trend, the other signaling a downward movement.  
    
*   The pattern emerges when traders' expectations are contradicted, often leading to price reversals.  
    
*   Developed by Daniel L. Chesler, CMT, it aims to trap and capitalize on traders' expectations and stop-loss orders.  
    
*   Not all Hikkake patterns successfully predict market direction; they work slightly more than half the time.

## How the Hikkake Pattern Works

The hikkake pattern (pronounced Hĭ KAH kay) is a complex bar or candle pattern that begins to move in one direction but reverses quickly and is said to establish a forecast for a move in the opposite direction. This pattern was developed by Daniel L. Chesler, CMT, who first published a description of the pattern in 2004. The pattern has four key points:

1.  The first two candles (or bars) of the pattern are of declining size. These are referred to as an [inside-day](https://www.investopedia.com/terms/i/inside_day.asp) pattern or a [harami](https://www.investopedia.com/terms/b/bullishharami.asp) [candlestick pattern](https://www.investopedia.com/trading/candlestick-charting-what-is-it/). It does not matter whether either of these days closes higher or lower than it opened, so long as the body of the first completely overshadows the body of the second.
2.  The third candle closes below the low in the first setup (or above the high in the second setup) of the second candle.
3.  The next one or more candles will drift below (or above in the second setup) the third candle and may begin to reverse direction.
4.  The final candle will close above the high of the second candle (or below the low of the second candle in the second setup).

When the fourth characteristic occurs, the pattern suggests that the trend will continue in the direction of the final candle. The next two charts illustrate both setups.

![Image](https://www.investopedia.com/thmb/kK4cfTSjwIS5eK_UTFY6m8yayMg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash-INV-final-Hikkake-attern-Mar-2021-01-0149db5e4f4c47e3ab22f36cc3613a37.jpg)

*— Image by Sabrina Jiang © Investopedia 2021*

The first pattern is the bullish setup, with each of the four characteristics marked. The second, less common pattern, is the bearish setup.

![Image](https://www.investopedia.com/thmb/VPEMEVVMX8u2FQvHy6QZO1SwrQw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash-INV-final-Hikkake-attern-Mar-2021-02-8845e4bb30a342bd9621cee22b299007.jpg)

*— Image by Sabrina Jiang © Investopedia 2021*

The pattern's name comes from a Japanese word meaning "hook, catch, ensnare." Chesler observed this pattern trapping traders into committing capital, only for the market to move in the opposite direction.

Conceptually, the hikkake pattern begins with a short-term dip in market volatility, followed by a breakout price move. This third candle often leads traders to believe a breakout has formed. Traders enter the market and set a stop in the opposite direction of their trade. If the price reverses, [stop-loss orders](https://www.investopedia.com/terms/s/stop-lossorder.asp) activate, potentially boosting the price as it moves past the second candle's boundary.

## Practical Examples of the Hikkake Pattern

![Image](https://www.investopedia.com/thmb/onpf8Z8Al7mWy9Q-ghLjr_xWYUg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash-INV-final-Hikkake-attern-Mar-2021-03-82f49ac0395b4a25945ae895b131e306.jpg)

*— Image by Sabrina Jiang © Investopedia 2021*

This pattern occurred in the price action for shares of Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) and is somewhat typical of how this pattern plays out slightly more than half the time it occurs. The pattern shown in this chart is the bullish setup and holds all four characteristics described above.

Here the price pattern is highlighted by a rectangle, and the implied forecast is for a bullish move in the days beyond the rectangle. This example shows that the chart had a mild upward trend after leaving the boxed area. Not all hikkake patterns play out to the correct forecast direction.

## The Bottom Line

The hikkake pattern is a tool that technical traders use to anticipate short-term market movements by observing price patterns. Traders can use it to signal a potential downward trend and to suggest an upward move. Its key feature is a reversal of the initial direction, which can trap traders expecting the trend to continue. While the pattern can help identify potential breakout opportunities, it isn't always accurate. As with any trading strategy, traders should consider their risk tolerance when using the hikkake pattern and consult a financial professional if needed.  

_Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal._

> **Article Sources**
>
> 1.  Mark Andrew Lim. "[The Handbook of Technical Analysis](https://www.wiley.com/en-cn/The+Handbook+of+Technical+Analysis+++Test+Bank:+The+Practitioner%27s+Comprehensive+Guide+to+Technical+Analysis-p-9781118498910)," Pages 230-231. John Wiley & Sons, 2015.
>     
> 2.  Chesler Analytics. "[About](https://www.chesler.us/about/whoweare.htm)."