Modified Hikkake Pattern

The modified hikkake pattern is a less frequent variant of the basic hikkake pattern and can act as a continuation or reversal pattern, defending on price bar context.

The hikkake pattern is named after a Japanese verb that means 'to trap' but Western traders may refer to the pattern as an ‘inside day false breakout’. The pattern consists of two price bars in which the first price bar – or inside price bar – has a lower high and higher low than the previous price bar. If the next price bar has a higher high and higher low than the inside price bar, it then competes a bullish hikkake continuation pattern. If it has a lower high and lower low, then it completes a bearish hikkake reversal pattern. The outcome of the hikkake pattern, whether continuation or reversal, is dictated by relative placement within the larger price pattern.

The modified hikkake is an identical pattern that appears less often than the basic hikkake, except the price bar immediately preceding the inside bar has the following characteristics:

• A close at the top of the intraday range for bearish patterns and the bottom of the intraday range for bullish patterns.
• Has a range that is narrower than the range of the previous bar.

Traders should use the modified hikkake pattern in conjunction with other forms of technical analysis, such as chart patterns or technical indicators, to maximize their odds of success.

The security is engaged in an active uptrend or a pullback within an active downtrend. Bulls are gaining confidence while the rally progresses while bears are placed on the defensive. Price continues to rise for a number of days, adding to bullish complacency while bears grow despondent. The security posts a strong session on the final rally day, closing well above the opening tick, at or near the intraday high.

The next session opens near or just below the prior close and reverses, with a selloff dropping the security close to the prior price bar's intraday low by the closing bell. Neither a new high nor low is posted in that session, generating an inside price bar. It opens higher in the next session and thrusts above the 2-day high, completing a bullish modified hikkake continuation pattern. If the security opens lower in that session and drops below the 2-day low, it would complete a bearish modified hikkake reversal pattern.