The Hikkake is a chart pattern that traders use to identify turning points as well as possible continuations in the market. Do you want to learn more about how to effectively apply the Hikkake pattern to your binary options strategy? Would like to know how to identify this pattern?
How to Use the Hikkake Pattern in Binary Options Trading
The Hikkake pattern comprises of 2 or 3 bars. This pattern is mainly identified by a bar that forms inside the pattern. This inside bar pattern comprises of two bars with the second bar forming inside the high and low of the previous bar.
For the Hikkake to form, the open and close of the second bar should be in the previous bar’s high or low even though the shape of the bar is inconsequential.
Pro tip: The Hikkake pattern frequently works with the harami patterns. As such, most traders tend to wrongly assume that the inside bars that characterize the hikkake pattern are bearish or bullish harami patterns.
Trading the hikkake pattern
For simplicity sake, one could look at the Hikkake pattern as an inside bar that has failed to completely form. As a candlestick formation, the inside bar forms when a candle closes inside the open or close of the previous candle. When the open or close of the previous candle experiences a breakout it is a confirmation of a trade opportunity.
When the formation of the inside bar fails, traders who tried to trade this inside bar trigger a series of stop losses, which in turn make the price movement stronger. The failure of the inside bar is an indication of traders’ reluctance to proceed in the same direction as the initial breakout, instead preferring the direction of the Hikkake.
Several steps are involved in successfully trading the hikkake:
· Identify an inside bar formation- It is best to identify larger candles that are proceeded by smaller candles inside their opening or closing range.
· Look out for the range to breakout.
· Join the trade as soon as the breakout happens and the price starts to move in the opposite direction.
· Undertake a stop loss at the high of the last three candles in the range or at the lowest of the last 3 candles. This will allow the stop loss to be close to support or resistance.
The most effective way to ensure that a hikkake pattern is bullish or bearish is to identify the formation of a third bar after the two that form inside the pattern. A bullish hikkake pattern is formed when the second candle after the one that forms in the inside bar features a higher high and a lower low compared to the high and low of the inside bar. The third candle should close higher than the high of the inside bar.
When a bearish hikkake pattern forms, the second candle that forms after the inside candle will have a high that is higher and a low that is lower than the high or low of the inside bar.
While the Hikkake is a strong and versatile candlestick pattern, there is no guarantee of a set profit level simply by using the pattern. This is not just a characteristic of the Hikkake pattern—most other candlestick patterns also do not offer a guarantee of profits. However, this should not deter you; it is best to use the Hikkake with other strategies to support your trading success. For example, using Bollinger Bands together with the signals provided by the Hikkake pattern could increase the accuracy of your trades. It is also important to realize that the Hikkake pattern can form any time. This makes it necessary for you to be on the lookout for hikkake patterns on daily, weekly and monthly charts.