How to use the Hikkake pattern
The Hikkake pattern helps to identify points to open positions. Traders use it to look for false breakouts and to predict price dynamics. There is a pattern for bearish and bullish markets.
Hikkake’s main signal is the return of the price after a false break of support or resistance. The indicator consists of three candles:
– the first candle indicates consolidation and is within the price range;
– the second is responsible for the false breakout. It can be either up or down from the first candle;
– the third candle, the confirming candle, signals the return of the price to the range of the first candle. At the same time, it moves in the opposite direction.
There are two types of patterns: bullish and bearish. A bullish pattern indicates that the price may rise after a false breakdown. It is formed when the price rises above the support level and then reverses and goes up. The bearish Hikkake pattern, on the other hand, signals a probable price decline after a false upward breakout. It appears when the price rises above a resistance level but then reverses and falls.
Advantages and disadvantages
The main advantage of the pattern is its versatility. With the help of Hikkake, you can identify entry points. The indicator is easy to use and effective in different time frames. In addition, false signals are rare. However, their probability increases in conditions of low market volatility.
Hikkake provides useful information for both trend continuation and trend reversal. As a result, traders can significantly increase their profits and reduce the probability of losses. Other technical analysis tools can amplify the information provided by the indicator. Moreover, using the pattern requires certain skills to identify false signals.
Trading strategies
The Hikkake pattern helps you to implement one of the most effective trading strategies. The pattern is ideal when you need to quickly identify a false breakout. Furthermore, the indicator shows its efficiency when looking for opportunities to open positions. Hikkake is suitable for a long-term strategy as well as for one-day trading.
A reversal on the chart can be seen as a good entry point. It allows the trader to set a clear stop-loss level. In the case of a bullish hikkake, the price returns and exceeds the previous high. Then we can talk about a strong buying position.
Price reversals after a false breakdown are most often found at major support and resistance levels.
Like any other tool, it is better to use Hikkake in combination with other patterns. This way the trader can minimise the risks and find the most suitable points to enter the market.
