Definition:
The Modified Hikkake Candlestick Pattern is a price-action setup that signals a potential reversal or continuation, characterized by an inside bar followed by a subsequent bar that breaks the high/low of the inside bar, but then reverses to close in the opposite direction. it is used by traders to anticipate market turns, the Modified Hikkake highlights deceptive price movements before a potential breakout or breakdown.
how traders can identify the Modified Hikkake Candlestick Pattern on a chart:
- Inside Bar Formation: Start by identifying an inside bar, which means the entire range (high to low) of this bar is within the range of the previous bar. The inside bar reflects market indecision or consolidation.
- False Breakout: After the inside bar, the next bar should break out of the high or low of the inside bar, suggesting an impending move in that direction. This is where traders might initially think the market will continue in the direction of the breakout.
- Reversal: Despite the initial breakout from the inside bar’s range, the subsequent bar should reverse and close in the opposite direction. If the false breakout was to the upside, then the reversal bar should close below the inside bar’s low. Conversely, if the false breakout was to the downside, then the reversal bar should close above the inside bar’s high.
- Context: While not part of the pattern’s structure, the context in which the Modified Hikkake appears is crucial. For instance, if found at a key support or resistance level or in line with a prevailing trend, the pattern can have greater significance.
Significance and indications of the Modified Hikkake Candlestick Pattern.
Reliable Signal Amidst Deception: The Modified Hikkake stands out due to its ability to identify deceptive price movements. At its core, the pattern highlights a fake breakout, where the market seems to be committing to a particular direction, only to reverse swiftly. This deceptive move can trap unwary traders, but those familiar with the Hikkake can spot potential reversals or continuations early, providing them a leg up against the masses.
Reinforcement of Support and Resistance Levels: When the Modified Hikkake forms around key support or resistance levels, its predictive power is enhanced. A false breakout followed by a reversal at a well-established support or resistance level can indicate a strong likelihood that the level will hold, making it a valuable tool for entry and exit decisions.
Risk Management: The clearly defined structure of the Hikkake aids in precise risk management. Traders can set stop-loss orders just beyond the extreme of the false breakout bar, ensuring minimal exposure if the trade doesn’t go as anticipated. This defined risk parameter is vital for maintaining a positive risk-reward ratio in trading strategies.
Versatility in Multiple Timeframes: The Modified Hikkake is adaptable across different timeframes, from intraday charts to weekly or even monthly scales. This versatility ensures that traders of various styles, whether they’re scalpers, day traders, or swing traders, can utilize the pattern to inform their strategies, making it a versatile tool in a trader’s toolkit.
In summary, the Modified Hikkake Candlestick Pattern offers traders a nuanced view of potential market turns, marrying the understanding of deceptive price moves with the broader context of technical levels. It’s a beacon of clarity in a sea of market noise, directing traders towards informed decisions.
the activities and intentions of institutional or “big” traders when the Modified Hikkake Candlestick Pattern emerges:
Price Manipulation and Stop Runs: When the Modified Hikkake forms, especially around key levels, it often indicates attempts by institutional traders to manipulate the price. The initial breakout post the inside bar can be a deliberate move by big players to trigger stop-loss orders placed by retail traders around those levels. This allows big traders to absorb liquidity, filling their larger orders without significantly moving the price. Once they’ve achieved this, the price reverses, forming the crux of the Hikkake pattern.
Position Accumulation: The deceptive breakout can be a ruse where big traders accumulate their desired positions, either long or short. For example, if the false breakout is to the downside but then reverses upwards, it might suggest that big traders were accumulating buy positions by pushing the price down momentarily, triggering sell orders, and then buying in at a more favorable price before driving the price up.
Volume Confirmation: To better understand the activity of institutional players during a Modified Hikkake formation, it’s prudent for retail traders to monitor volume. An increase in volume during the deceptive breakout and the subsequent reversal can be an indication that big traders are actively involved in the price action, validating the significance of the pattern.
Battle Between Bulls and Bears: The Modified Hikkake can also represent a tug-of-war between buyers and sellers. The inside bar signifies market indecision. The subsequent bars, with their breakout and reversal, can indicate the initial dominance of one group (bulls or bears) but then a swift takeover by the opposing side. If institutional traders are on the winning side of this battle, the trend that follows the completion of the pattern is likely to be strong and sustainable.
In essence, behind the curtains of the Modified Hikkake Candlestick Pattern is a dance of deception and strategy, primarily led by institutional traders. Retail traders, by understanding this choreography, can align their moves with the market’s maestros, rather than being outmaneuvered by them.
Modified Hikkake Pattern Confirmation Table
To increase the probability of success when trading the Modified Hikkake pattern, it’s essential to use a combination of confirmatory tools. Here’s a table suggesting four such tools:
| Tool | Description |
|---|---|
| Key Levels (Support/Resistance) | Ensure the pattern is forming around established support or resistance levels, enhancing its significance. |
| Break of High/Low Post-Formation | A clear break above the high (for bullish setups) or below the low (for bearish setups) of the pattern suggests a strong follow-through in the anticipated direction. |
| Volume Analysis | An increase in trading volume during the deceptive breakout and the reversal provides validation that institutional traders are actively participating, lending credence to the pattern. |
| Confluence with Technical Indicators | Use other technical indicators (like RSI, MACD, or Moving Averages) to validate the pattern. For instance, if the Hikkake signals a bullish move and the RSI is showing an oversold condition, it strengthens the bullish bias. |
By incorporating these tools, traders can refine their decision-making process, ensuring they act on high-probability setups and aligning themselves with the predominant market forces.
Trading the Modified Hikkake: Key Insights
Best Timeframe: While the Modified Hikkake can appear on various timeframes, the daily chart tends to offer the most reliable signals, balancing precision with market noise filtration.
Trading Session: Given its global relevance, the London-New York overlap session (between 12:00 PM to 4:00 PM GMT) is ideal, as it’s when the largest volume of traders are active, leading to more significant price movements and clearer pattern formations.
Winning Ratio: While dependent on individual trading strategies and market conditions, with proper confirmation tools, the Modified Hikkake can achieve a winning ratio between 60-70%. Remember, maintaining a favorable risk-reward ratio is pivotal to long-term success.
Trading Strategy with Modified Hikkake Pattern Using Confluence
Entry:
- Wait for the Modified Hikkake pattern to form.
- Confirm the pattern with additional confluence factors such as:
- Nearby key support or resistance levels.
- Relevant technical indicators (like an oversold RSI for bullish setups or overbought for bearish ones).
- Increased volume during the pattern formation.
- Once confirmed, enter the trade in the direction of the reversal: buy for a bullish setup and sell for a bearish one.
Stop Loss:
- Place the stop loss just beyond the extreme of the deceptive breakout bar. This ensures minimal exposure, as a genuine breakout in the opposite direction would invalidate the pattern.
Take Profit Level:
- Aim for a minimum risk-reward ratio of 1:2 or higher. For example, if your stop loss is set 10 pips away from your entry, set a take profit level at least 20 pips in your trade’s direction.
- Alternatively, consider using trailing stops or exiting the position upon the formation of counter signals, such as opposing candlestick patterns or divergence in technical indicators.
Conclusion
The Modified Hikkake pattern is a nuanced tool that captures the intricacies of market deception. When combined with confluence factors, it can provide traders with high-probability setups. However, like all trading strategies, disciplined risk management and continuous learning are vital for achieving consistent success. It’s not just about spotting the pattern but understanding the narrative behind it and executing trades with precision and confidence.
