Bulkowski's Bearish Hikkake

Written and copyright © 2010-2011 by Thomas N. Bulkowski. All rights reserved.

Dan Chesler (CMT, CTA) discovered the hikkake candlestick pattern and popularized it in two articles, "Trading false moves with the hikkake pattern," from Active Trader magazine, April 2004, and "Quantifying market deception with the hikkake pattern," from The Technical Analyst, November 2004. I put it to the test and the following describes my findings for the bearish hikkake candlestick with confirmation.

Bearish Hikkake Important Results

I setup my program to find hikkake's based on a confirmed bearish hikkake pattern shown in the figure to the right. That includes the 3-bar hikkake and up to 3 additional days for confirmation. However, all of the numbers assume that confirmation occurs when price closes below the bottom of the 3-bar candle or above the top of the 3-bar hikkake pattern. That is how I measured the performance of all other candlestick types.     Theoretical performance: bearish when confirmed (but can act as a reversal or continuation) Tested performance: bearish continuation 50% of the time. Frequency rank: 18 Overall performance rank: 83 (1 is best out of 105) Best percentage meeting price target: 58% (bear market, down breakout) Best average move in 10 days: -5.65% (bear market, down breakout) Best 10-day performance rank: 15 (bear market, down breakout) The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Bearish Hikkake   Bearish Hikkake, Confirmed

Bearish Hikkake Discussion

The bearish hikkake candlestick pattern resembles a three inside up candle pattern but without the constraints. The bearish hikkake doesn't require a falling price trend nor is candle color important as they both are in the three inside up candlestick.

In theory, the bearish hikkake is supposed to be a bearish candlestick, but it can act either as a reversal or continuation of an existing price trend. That's what I found, too. My numbers say the confirmed pattern is a continuation 50% of the time (random), with downward breakouts more than twice as likely to occur as upward ones (13,333 vs 6,666 samples). That shouldn't be a surprise because price is probably closer to the bottom of the confirmed candle than the top.

The bearish hikkake is plentiful, so plentiful that I limited samples to 20,000. It ranks 18th out of 105 candle types, where 1 has the highest frequency.

The best average move 10 days after price closed above the top of the highest high or below the lowest low in the 3-bar candlestick was 5.65% in a bear market after a downward breakout. That performance ranks 15th where 1 is best out of 105 candles, and that's quite good.

Bearish Hikkake Identification Guidelines

Bearish Hikkake: Trading Tidbits

Here are some interesting facts my analysis turned up.

1. Performance for tall bearish hikkake candles is best in a bear market with average declines of 11.83%% logged. Tall means taller than 5.23% of breakout price divided by the height of the 3-bar pattern. Price after short hikkake candles drop just 7.56%, which is good, too. No other combination of up/down breakouts and bull/bear markets compete with the performance numbers.
2. Tall hikkake candles outperform the shorter ones in all combinations of bull and bear markets, up and down breakouts.
3. Breakouts below a 50-bar exponential moving average result in better performance in bear markets after downward breakouts: 10.54% versus 8.11%.
4. Once the three bars of the hikkake appear, place a buy stop below the lowest low in the pattern (or below the low of the inside day) to buy into the pattern in a timely manner.
5. Chelser says a stop placed at the opposite end of the pattern works well. For downward breakouts, use the highest high in the 3-bar pattern (I would put it a penny above the highest high). For upward breakouts, use the bottom of the pattern as a stop location.
6. Check out the three inside up candle pattern because the performance of that candle beats this one.

Bearish Hikkake Example

The chart on the right shows a bearish hikkake in the Dow industrials (^DJI). I show the candle in the inset and it appears beginning at point A.

Starting from A, the first two days comprise the inside day followed by a higher high and higher low. Then this candle example moves sideways until candle B, which confirms the bearish hikkake by closing below the inside day (the candle line after A).

The industrials continue lower for a few days before rebounding in July 2009.

-- Thomas Bulkowski

Written and copyright © 2010-2011 by Thomas N. Bulkowski. All rights reserved. May your tongue stick to the roof of your mouth with the force of a thousand caramels.