Bearish Hikkake Pattern

The Hikkake pattern, a candlestick pattern with the potential to identify market trend reversals or continuations, was crafted by the astute trader Daniel L. Chesler. First introduced to the trading community in the September 2004 edition of Active Trader Magazine, it marked a significant milestone in technical analysis. 

The Hikkake pattern is formed by a sequence of candles indicating a potential market direction change. The pattern consists of three main components: 

  1. Inside Bar: The first part of the pattern begins with an inside bar, a candlestick whose range (high and low) is within the previous candle’s range. This signifies a period of consolidation or indecision in the market.
  1. Fakeout Move: Following the inside bar, the market initially breaks out opposite the preceding trend, creating what appears to be a breakout. This cunningly deceptive move lures traders into believing the trend will continue in the same direction, requiring them to stay vigilant.
  1. Reversal: The third component of the Hikkake pattern is a reversal. The price unexpectedly reverses after the fakeout move, where the market initially breaks out in the opposite direction. It moves back inside the range of the initial inside bar, creating a trap for traders who entered positions based on the fakeout move. This reversal also signals a potential reversal in the trend.

The initial trend is upward in a bearish Hikkake pattern. The inside bar is followed by a bullish candle that breaks above its high. However, instead of continuing upward, the price reverses and closes below its low, indicating a potential reversal to the downside. 

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