Modified Hikkake Pattern

What Is the Modified Hikkake Pattern?

The modified hikkake pattern is a less successive variation of the essential hikkake pattern and is seen as a reversal pattern.

The concept of the modified form is like the essential variant, then again, actually a "setting bar" is utilized prior to the inside price bar/candle. Hence, the modified rendition comprises of a setting bar, an inside bar, a fake move, followed by a move above (bullish) or below (bearish) the inside bar high or low, individually.

Figuring out the Modified Hikkake Pattern

The hikkake pattern is named after a Japanese action word that means "to trap," yet Western traders might allude to the pattern as an "inside day false breakout." The pattern comprises of two price bars in which the primary price bar — a inside price bar — has a lower high and higher low than the previous price bar.

From here, two variants of the hikkake pattern can create, a bullish and bearish form.

On the off chance that the next price bar after the inside bar has a higher high and higher low, this sets up a possibly bearish pattern. A short entry, or sell, is put just below the low of the inside day.
On the off chance that the next price bar after the inside bar has a lower high and lower low, this sets up a possibly bullish pattern. A buy order is put just over the high of the inside day.
If a bearish hikkake pattern triggers a short trade, a stop loss can be put over the high of the pattern.
If a bullish hikkake pattern triggers a long trade, a stop loss can be set below the low of the pattern.

Special Considerations

The modified hikkake requires the following qualities of the price bar promptly going before the inside bar:

A close at the highest point of the intraday range for bearish patterns and the lower part of the intraday range for bullish patterns.
It has a reach that is more modest than the scope of the previous bar.

The remainder of the trading rules continue as before.

Traders ought to utilize the modified hikkake pattern related to different forms of technical analysis, for example, chart patterns or technical indicators, to expand their chances of achievement. For instance, a trader could search for a bullish hikkake pattern to form during a pullback inside a longer-term uptrend. The bullish hikkake may signal the finish of the pullback and the reappearance of the uptrend.

Modified Hikkake Trader Psychology

There are two variants of the pattern, we should check out at the bearish form first.

The setting bar closes close to the high for that period, yet the overall reach is more modest than the prior price bar. Then, at that point, an inside bar shows up, showing a delay in the buying. On the next bar, there is a push higher, with a higher high and higher low. The modified hikkake is in play, with a sell or short order set below the inside bar low. Right now the bulls are sure, however on the off chance that the price drops below the inside bar, it could trigger a cascade of selling as the people who recently bought start to scrutinize their decision in view of the recent drop. For this reason the pattern is viewed as a reversal signal on the off chance that the price drops below the low of the inside bar.

The bullish pattern happens as prices are pushing lower. The setting bar closes close to the low of the period, leaving the bears feeling sure. However, the scope of this period is more modest than the prior period. An inside bar forms, causing some indecision. The bears push the price lower the following period, making a lower low and lower high. The bullish reversal pattern is in play in the event that the price transcends the inside bar high. That large number of bears who recently sold will be "trapped" and could add fuel to the buying that follows. For this reason the pattern is viewed as a reversal signal in the event that the price transcends the inside bar high.

Illustration of How to Use the Modified Hikkake Pattern

The modified hikkake pattern is moderately rare to spot. The following pattern isn't perfect as the setting bar closes inclining further toward the middle of the candle rather than close to the low. All the other things in the pattern lines up with the psychology of the pattern.

Macy's (M) daily chart was pulling back inside a longer-term uptrend. There is a sharp drop followed by a more modest price bar which is the setting bar. In this case, it closed close to the middle of the candle. Overall however, we can see that bearish confidence is strong due to the recent price drops, which is an important part of the pattern. The next day is the inside bar. Following the inside day, the price moves lower. Four meetings later, the price rallies back over the inside candle high.

Right now, a long trade could be initiated with a stop loss below the pattern low still up in the air by the trader.

The price, in this case, keeps on moving higher and the trader could take profit in view of their method.

Difference Between the Modified Hikkake Pattern and a False Breakout

The modified hikkake and the essential hikkake both have components of a false breakout in that the price moves one heading following the inside bar, however at that point it snares the alternate way. A false breakout is comparative, then again, actually it can happen whenever there is a distinguished support or resistance level. The price travels through the level, just to reverse course in the other heading rapidly.

Limitations of Using the Modified Hikkake Pattern

The modified hikkake has rather severe criteria, so it's anything but a common pattern. Opportunities to trade in light of the pattern are limited.

While the entry point and stop loss are obviously defined with the pattern, carrying out profit-taking measures ultimately depends on the trader, as the pattern doesn't give a profit target.

It ought not be assumed that the price will break out in the expected course. The essential hikkake can bring about a reversal or continuation of the predominant trend. The modified hikkake may limit the trader from seeing different opportunities in the event that they exclusively centered around waiting at the cost to move above/below the inside bar high/low.

Highlights

The bearish form comprises of a setting bar that closes close to the high however has a more modest reach than the prior candle. This is followed by an inside bar, then a candle with a higher high and higher low. The pattern finishes when the price drops below the inside bar low.
There is both a bullish and bearish form of the modified hikkake.
The bullish rendition comprises of a setting bar that closes close to the low however has a more modest reach than the prior candle. This is followed by an inside bar, then a candle with a lower high and lower low. The pattern finishes when the price transcends the inside bar high.
The modified hikkake adds a setting bar to the fundamental hikkake pattern.