The Hikkake Pattern: A Structured Course

Core Description

• The Hikkake Pattern is a technical price action setup built around false breakouts and the behavior of trapped traders at key market levels.
• It starts with an Inside Bar, is defined by a failed breakout, and confirms with a reversal through the opposite boundary.
• Effective application relies on combining the Hikkake Pattern with higher timeframe trends, robust risk management, and context-aware validation to avoid common pitfalls.

Definition and Background

The Hikkake Pattern is a multi-bar price action formation observed in financial markets, designed to capture the psychology behind failed breakouts and trapped traders. The term “Hikkake,” introduced by Daniel L. Chesler, CMT, in the early 2000s, is inspired by judo, where it describes a hooking or trapping technique. Chesler developed the pattern to help traders systematically identify false breakouts occurring around Inside Bars—a zone frequently associated with liquidity clusters and herd behavior.

An Inside Bar occurs when the entire range of a candlestick is contained within the previous bar's (mother bar) high and low. This usually indicates a period of price compression and potential for breakout moves. While many strategies focus on trading the immediate breakout from such compression, the Hikkake Pattern instead anticipates a failed breakout—allowing traders to act on the subsequent reversal, which is triggered by the stops of traders who entered just outside the Inside Bar’s boundaries.

The Hikkake Pattern has been adopted by professionals, independent traders, and technical analysis educators, especially through features in “Technical Analysis of Stocks & Commodities.” Various researchers have refined its rules, making it a recognized tool for identifying traps and reversals in equities, futures, forex, and other liquid markets. Technological advancements, including automated pattern recognition and robust backtesting platforms, have also contributed to its widespread use.

At its core, the Hikkake Pattern reflects the interaction between breakout participants seeking momentum and other traders who leverage their stops and liquidity, leading to a visible price “trap” and subsequent reversal. Its behavioral insight and visually clear structure make it a practical strategy for both discretionary and quantitative traders.

Calculation Methods and Applications

Calculation and Identification Rules:
The Hikkake Pattern includes these sequential components:

1. Inside Bar Identification

   • Bar 2 (the Inside Bar) is fully enclosed within Bar 1 (the mother bar): its high is lower than Bar 1’s high, and its low is higher than Bar 1’s low.

2. False Breakout

   • Within one to three bars after the Inside Bar, price briefly exceeds the Inside Bar’s high or low, typically with weak follow-through—characterized by a small range and limited volume—which suggests insufficient commitment from breakout participants.

3. Reversal Confirmation

   • The pattern is confirmed once price closes beyond the opposite side of the Inside Bar, indicating the reversal and validating the trap. In some interpretations, this confirmation must come within three bars.

Entry, Stop, and Target:

• Entry Trigger: After a false break to the upside, enter short on a decisive close below the Inside Bar’s low (opposite for long trades).
• Stop-Loss: Place the stop just outside the extreme of the false breakout, ensuring protection if the pattern fails.
• Trade Window: Confirmation must occur within one to three bars; after this, the setup loses validity.
• Profit Target: Consider the mother bar’s range or the next meaningful support/resistance level as the initial target.

Application Across Markets:

• The Hikkake Pattern has been observed in equities, futures, forex, and other liquid assets.
• It is generally most reliable on higher timeframes such as one-hour, four-hour, or daily charts, where overall noise is reduced.
• Validity can improve with volume and volatility filters; prioritize reversals on above-average volume, and avoid trades during low liquidity or significant news releases.

Comparison, Advantages, and Common Misconceptions

Hikkake vs. Inside Bar Breakouts:
Inside Bar setups typically expect a breakout beyond the mother bar’s range, while the Hikkake Pattern focuses on the failure of such breakouts. This subtle difference means the Hikkake looks for evidence of failed participation and consequent reversal, rather than trading every breakout.

Hikkake vs. Fakey Pattern:
Although both patterns involve false breakouts, the Hikkake Pattern is more precise, requiring an Inside Bar, a clear false breakout, and a close through the opposite boundary—reducing the room for subjective interpretation. The Fakey Pattern is broader and more context-dependent.

Hikkake vs. Engulfing Patterns:
Engulfing patterns are single-bar events where a bar completely covers the prior bar’s range, signaling momentum. The Hikkake is a multi-step process, describing a narrative of trapping and reversal rather than an immediate show of buying or selling force.

Hikkake vs. Pin Bars:
Pin Bars are defined by a long wick and a close within the bar’s range, indicating sharp rejection, usually within one candle. The Hikkake emphasizes the sequential failure and reversal, beginning with an Inside Bar and illustrating the dynamics of trapped traders.

Hikkake vs. Breakout-Pullback Continuation:
Breakout-pullback trading accepts the breakout as valid and seeks to enter on a pullback. In contrast, the Hikkake Pattern expects the breakout to fail and acts only once this failure is confirmed.

Hikkake vs. Classical Patterns & Range Breakouts:
Classical patterns, such as Head & Shoulders or triangles, develop over longer periods and typically require volume confirmation. The Hikkake is tactical and microstructural, developing over a handful of bars, and specifically targets failed breakouts and related reversals.

Advantages:

• Clearly outlined entry, stop, and confirmation rules
• Designed to exploit market psychology and liquidity traps
• Can be applied to various markets and timeframes
• Suitable for systematic and discretionary use

Common Misconceptions:

• Treating any Inside Bar reversal as a Hikkake (the pattern requires a false breakout and a specific reversal close)
• Neglecting the main trend or trading in illiquid conditions
• Acting without confirmation (entering before a valid signal)
• Overlooking execution variables like slippage and transaction costs

Practical Guide

Step 1: Confirm the Inside Bar Structure
Check that the setup starts with a strict Inside Bar. The second candle’s high must be below the previous bar’s high, with its low above the previous bar’s low. This range creates the “trap zone.”

Step 2: Distinguish False Breakouts
Look for a brief move outside the Inside Bar’s range with limited follow-through and a rapid reversal. These false breakouts commonly display long wicks, low volume at the break, and are followed by attempts to reverse direction.

Step 3: Entry Triggers and Timing
Only place trades after confirmation—a close beyond the Inside Bar’s opposite level. For example, if there has been a quick upward spike, a short trade is considered after a close below the Inside Bar’s low. Avoid acting before confirmation or during the current bar.

Step 4: Manage Risk Logically
Set stop-loss orders just outside the false breakout’s extreme. Consider an ATR (Average True Range) buffer to adjust for volatility. Applying volatility filters (e.g., using ATR above a pre-set value) helps to optimize stop placement.

Step 5: Select and Scale Profit Targets
Use prior swing highs/lows or the Inside Bar’s projected range as guideposts for taking profits. Partial scaling out is possible at interim targets, while stops can be trailed as price moves favorably.

Step 6: Employ Volume and Context Filters
Prefer setups where volume decreases during the false breakout and increases during the reversal, supporting the presence of trapped participants. Always consider the pattern relative to the higher timeframe trend and significant support or resistance.

Step 7: Validate Through Backtesting and Journaling
Backtest the pattern on historical charts before entering live trades, accounting for slippage and transaction costs. Keep a detailed journal to measure hit rates, average outcomes, trade duration, and adaptability in different market phases.

Case Study: E-mini S&P 500 (CME Futures, March 2020)

(Note: The following is a hypothetical example for educational purposes only and not investment advice. Steps and data reflect a plausible market scenario.)

Following a strong rally, the E-mini S&P 500 daily chart showed an Inside Bar. The next day, the price briefly moved above the Inside Bar’s top, but swiftly reversed. On the subsequent day, the price closed clearly below the Inside Bar’s low, confirming a bearish Hikkake Pattern. Hypothetical sellers entered on this confirmation, placed stops above the false breakout, and set targets at the next demand zone. Over several sessions, the reversal extended lower before new support emerged.

Resources for Learning and Improvement

• Foundational Articles:
  • Chesler, D.L., “Failed Inside Bars and the Hikkake Pattern,” Technical Analysis of Stocks & Commodities (available in TASC archives, CMT Association library)
• Comprehensive Texts:
  • Thomas Bulkowski, Encyclopedia of Chart Patterns (covers breakout failures and related traps)
  • Robert D. Edwards & John Magee, Technical Analysis of Stock Trends (pattern reliability context)
• Academic and Peer-Reviewed Sources:
  • Journal of Empirical Finance and Quantitative Finance (studies on false breakouts and market regimes)
• Professional Associations:
  • CMT Association webinars, pattern guides, backtesting workshops
• Online Repositories:
  • thepatternsite.com (Bulkowski’s database), Investopedia’s pattern reference section
• Data and Backtesting Tools:
  • Norgate Data, Nasdaq Data Link (CRSP)
  • Backtesting platforms: pandas (Python), backtrader, TradeStation
• Broker Education Portals:
  • Trading platforms with technical analysis screeners and learning hubs often provide pattern explanations and performance context.

FAQs

What is the Hikkake Pattern?

The Hikkake Pattern is a short-term price action structure consisting of an Inside Bar, a false breakout beyond that bar’s range, and a reversal confirmed via a decisive close through the opposite side. It is used to identify and trade against the actions of trapped breakout participants.

How can traders distinguish a true Hikkake setup from similar patterns?

A valid Hikkake begins with an Inside Bar, displays a clear but quickly reversed breakout, and is confirmed by a close through the Inside Bar’s opposite boundary. Simple reversals or incomplete setups do not qualify.

Is the Hikkake Pattern bullish, bearish, or both?

It may signal either. A bullish Hikkake follows a false downside break with an upward reversal; a bearish Hikkake starts with a false upside break and a reversal downward. The effectiveness of either depends on market context.

What timeframes and markets best suit the Hikkake Pattern?

The pattern is generally most effective in liquid, heavily traded markets (such as equities, futures, and FX). Higher timeframes (like hourly or daily) help filter noise. Lower timeframes provide more opportunities but potentially less reliable signals.

How reliable is the Hikkake statistically?

Reliability varies according to market and rules, but raw success rates often range from 45 to 55 percent. Filters—such as trend alignment, volume confirmation, and avoiding illiquid trading periods—can improve precision.

Does volume add value when using the Hikkake Pattern?

Yes. Volume contraction on the breakout and expansion on the reversal supports the setup’s credibility. Weak or inconsistent volume may undermine pattern reliability.

What are common traps and mistakes when trading the Hikkake?

Frequent errors include acting without confirmation, misidentifying patterns, neglecting broader context, or underestimating costs from slippage and liquidity. Careful pattern filtering and disciplined risk practices help avoid these issues.

Can the Hikkake be automated?

Yes, the clear sequence behind the Hikkake Pattern (Inside Bar, false breakout, confirmed reversal) is well-suited to algorithmic detection. Many quantitative and rule-based strategies now incorporate this logic.

Conclusion

The Hikkake Pattern is a structured, behaviorally informed strategy for identifying and responding to failed breakout moves in various financial markets. By combining the Inside Bar, false breakout, and confirmed reversal, the pattern offers market participants a way to interpret price action traps using defined risk management and logic.

The approach is most effective when traders rigorously validate pattern context, control position size and risk, and ensure supporting factors such as volume, volatility, and trend. With systematic backtesting, journaling, and continuous learning, the Hikkake Pattern becomes a valuable addition to any comprehensive trading process. Through study and application, it deepens understanding of market psychology and the dynamics of breakouts and reversals in price action.