The best way for any trader to make profits from investing is by accurately predicting a change in the direction of an asset’s price. Since this task cannot be achieved without a solid understanding of market psychology, traders rely on a variety of candlestick patterns to make these predictions.
Kicker pattern is a two-bar candlestick pattern that is often used by traders to predict significant changes in the direction of the asset’s prices. Traders have come to rely on the kicker pattern due to its accuracy in determining a group of market participants that is controlling the direction. This pattern’s key characteristic is a very sharp reversal in price that occurs in the span of two candlesticks.
In this article, you will learn about bullish and bearish kicker patterns, how to identify them, how to use them to help with trading, and more.
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Table of Contents
Types of Kicker Candlestick Pattern
There are two types of kicker candlestick patterns: bullish and bearish. The following sections define each of them and show how they differ or relate to each other.
Bullish Kicker Pattern
A bullish kicker pattern most often forms whenever there is a significant downtrend. However, it can also form after an uptrend. A bullish kicker is made up of a large bullish candlestick that comes before a gap to the upside and is followed by a bearish candle. It predicts an upward trend in the assets’ prices and has been heavily relied on by many traders.
Bearish Kicker Pattern
On the other hand, the bearish kicker pattern consists of two candlesticks and signals the downside swing. The bearish kicker pattern is made by a bearish candle that is followed by a gap to the downside, then a bullish candle. Able to form on an uptrend or a downtrend, the bearish kicker pattern is helpful to traders as it shows when prices are about to go down.
How to Identify Kicker Pattern in Candlestick Trading?
Identifying the kicker pattern in your candlestick trading is the key to a profitable trade. It might sound easier on paper, but identifying a kicker pattern on a trading chart is quite challenging.
To help make the process easy, traders often focus on two things that make the kicker pattern stand out: the construction and the key characteristics of the kicker pattern.
Construction of Kicker Pattern
For a kicker pattern to occur, whether bullish or bearish, certain events have to take place:
- In the case of a bullish kicker pattern, the candlestick pattern will form during a bearish price movement. It’s a must for the bullish candle (white) to open above the close of the initial candle, which leads to the formation of a gap. For a bullish kicker pattern to occur, the second candlestick should not occupy the gap formed after the first candlestick. It’s rare for a bottom wick to form on the second candlestick.
- A bearish kicker pattern is similar to the bullish but is upside down. It often forms during the bullish price movement. In this case, it’s a must for the bearish candlestick (black) to open below the first candlestick, resulting in a gap. It’s rare to find a wick at the top of the second candlestick.
Key Characteristics of Kicker Pattern
The common characteristic of the kicker pattern is a very sharp reversal of the price that takes place within two candlesticks. The change represents a significant change in investors’ opinions, which often results from the news regarding the market.
More characteristics of a kicker pattern include:
- Upward and downward trends: There has to be an upward and a downward trend in the chart, depending on the type of the kicker pattern. The upward trend results in a bullish kicker pattern, while the downward trend leads to a bearish kicker pattern.
- The gap between the candlesticks: Both bullish and bearish kicker patterns have a gap that forms right before the reversal takes place. The size of the gap determines the significance of the signal.
- No wick (mostly): The second candlestick often lacks a top or bottom wick, depending on the type of kicker pattern forming.
How to Interpret Kicker Pattern?
A very sharp turn in a trading chart represents a change in investors’ opinions regarding the said market. Traders often watch out for this change, and riding it successfully can translate into enormous gains.
Traders often interpret the kicker pattern in the following ways:
- When a bullish kicker pattern occurs on a trading chart, you should look to ‘get long.’ This simply means buying the stock. The uptrend change in direction is sustained over time and can translate into gains if you caught it earlier.
- When a bearish kicker pattern takes place in a trading chart, the best decision would be to ‘get short.’ This means selling the stock. The length of the downtrend price movement will be determined by the size of the gap that forms when the bearish kicker pattern occurs.
How to Improve the Reliability of Kicker Pattern in Candlestick Trading?
On its own, the kicker pattern is very reliable for predicting a sharp reversal in the direction of a trade. However, some traders have gone the extra mile in their attempts to improve the reliability of kicker patterns.
- Know the strength of the pattern: To be certain that you’re dealing with a kicker pattern, it would be best if you know the strength of the pattern. You can measure this by checking the gap of the distance – the larger the gap, the stronger the pattern. Then, measure the range of the bar, where relative to previous bars, the range is big. The length of their wicks should be very small.
- Check volume conditions: The volume remains one of the best ways to gauge the conviction of a market. The higher the volume, the more the participants involved in the move. This helps to make the pattern reliable.
- Consider market volatility: False signals are common in a very volatile market. To help avoid falling into these traps, make sure the pattern performs bigger gaps and contains bigger candles.
How to Trade Kicker Pattern in Candlestick Trading?
In most cases, the accuracy of the kicker pattern in trading is questioned, and for this reason, a trading strategy is required. To make sure you only take a trade when there is an edge, you need to incorporate other filters as well.
Strategy – Trading Kicker Pattern with Moving Average
Moving averages have been very helpful to traders by giving them an insight into the market. Combined with the kicker pattern, you can expect an improved trading strategy. To make it work, you need to consider the following:
Market Environment
The kicker pattern signals a sharp reversal to the price movement, which is determined by a change in investors’ opinion. If the price is above the moving averages, the instrument is considered to be on an uptrend. When the prices are low, then the instrument is considered to be a downtrend. This way, you can combine the two to determine whether you’re dealing with the bearish or the bullish trend.
Identify and Confirm Trade Opportunity
If you suspect that a kicker pattern is forming and the moving averages are positioned to favor a certain trade, then it’s your time to get in and ride the wave.
Determine Trade Entry, Stop Loss, and Take Profit Levels
The trade entry should be right after the kicker pattern has formed, and the moving averages support the indicated price movements. The stop loss level should be above the entry point when dealing with a bearish kicker pattern and below the entry point when dealing with a bullish kicker pattern. The take profit level should be where you feel comfortable with the price movements.
Execute and Manage Trade
Once you have identified the entry point, stop loss, and take profit level, it’s time to execute and manage the trade. In many cases, a trade would at some point reverse and move in the opposite direction you intended. If this happens, it’s time to close the trade and take the profits.
Advantages and Limitations of Trading Kicker Patterns
Just like with any other trading patterns, kicker patterns tend to have their strengths and weaknesses. When trading using this pattern. it is critical to account for these strengths and weaknesses. Therefore, in the following sections, let us briefly discuss them.
Advantages of Trading Kicker Patterns
Listed below are the key advantages of trading the kicker pattern –
- These patterns have a relatively higher rate of success
- It is extremely easy to identify and trade based on these patterns
- Being a two candlestick pattern, they don’t take a lot of time in formation
Limitations of Trading Kicker Patterns
Listed below are the limitations of trading the kicker pattern –
- These patterns are extremely rare and hence don’t provide a ton of trading opportunities
- Generally, the price movement post completion of these patterns is short, hence the profit potential for most trades identified using these patterns is not very high
- These are rarely successful as standalone indicators
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Conclusion
A kicker pattern is one of the strongest trading signals available today. It correctly identifies an abrupt change in the price movements, which is driven by a change in the investors’ attitude towards a stock.
The two types of kicker patterns determine the right time to buy or sell the stock. They are characterized by the formation of a gap and a sharp reversal in price movements. Even though they are strong, formulating a trading strategy will help you master using this pattern.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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