Trading the Powerful Kicker Pattern

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Trading the Powerful Kicker Pattern

Probably the most powerful reversal signal in the candlestick charting universe, the Kicker pattern is one you need to know. It signals a massive shift in the sentiment of traders, often completely reversing the trend. And when they work out, you will be in the in-the-money quickly.

The Kicker Pattern

The kicker pattern is a major reversal signal, so we look for it after a sustained trend higher or lower. It is a very sharp reversal that occurs over two candles, although looking at several candles will provide a better context for whether it is a good kicker pattern or not.

Here is what the patterns look like.

Figure 1. Bearish and Bullish Kicker

If you are unfamiliar with how to read candlestick charts, see Introduction to Japanese Candlestick Charts.

For the bearish pattern, the price is in an uptrend, with the first bar of the two bar pattern being an up bar (white: close is higher than open). The second bar of the pattern is a strong down bar (black: close is well below open). It opens at or below (gaps down) the open of the first candle. Basically the second bar should show a very strong shift in sentiment, where there is no hesitation on the part of sellers.

For the bullish pattern, the price is in a downtrend, with the first bar of the pattern being a down bar. The second bar of the pattern is a strong up bar. It opens at or above the open of the first candle. The second bar shows a very strong shift in sentiment, where is no hesitation on the part of buyers.

This pattern is typically seen on daily, weekly or monthly chart and more frequently in markets that close each night–such as the stock market. In the forex market this type of pattern would only occur if the second bar occurs after a weekend.

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A trade is taken right near the close of the second bar, or alternatively at the open of the next bar. With such a strong shift we assume that the next bar following the pattern will also be strong, and in the same direction as the second candle.

Waiting for some sort of confirmation on this type of pattern is likely to do more harm than good since the price is likely to continue to run away from you.

Get in quickly and the price should quickly move you into the money. If the price doesn’t continue to the run in the same direction as the second candle, then get out (if trading traditional markets). A stop loss can be placed near the middle of the second candle, and moved to lock in profit as the price moves in your favor. Since this pattern can result in a full-fledged reversal there is no price target, so get out when momentum slows and look for other opportunities.

Figure 2 shows a bearish kicker pattern (circled).

The trend is up, marked by the series of white bars. Then we have a strong down bar, that opens at or below the prior up bar. Most importantly, the down bar is very strong with the close of that bar finishing near the low–showing little hesitation on the part of sellers. Ideally the second candle should close even closer to the low. In figure 2 there was a brief pause and a bit of a retrace into the second bar before the selling resumed. This is why an initial stop is placed near the middle of the second candle, then quickly moved once the price moves in our favor.

This is a good pattern, but no pattern is perfect. While it does often result in a reversal, finding the exact spot place to put a stop loss and a target can be tricky. The hope is the that the momentum from the second candle puts you in the money right away and then the trade can be managed more easily. If trading binary options, choose an expiry that allows enough time for the price to clear the second candle. The stronger second the candle the better, and the second candle gapping away from the first candle is another probability enhancer.

Kicker Pattern

What is a Kicker Pattern

A kicker pattern is a two-bar candlestick pattern that is used to predict a change in the direction of the trend for an asset’s price. This pattern is characterized by a very sharp reversal in price over the span of two candlesticks; traders use it to determine which group of market participants is in control of the direction. The pattern points to a strong change in investors’ attitude surrounding a security. This usually occurs following the release of valuable information about a company, industry or an economy.

BREAKING DOWN Kicker Pattern

The kicker pattern is deemed to be one of the most reliable reversal patterns and usually signifies a dramatic change in the fundamentals of the company in question. To traders observing the kicker pattern, it may seem like the price has moved too quickly, and they may wait for a pullback; however, those traders may find themselves looking back and wishing they had entered a position when they originally identified the kicker pattern.

While the kicker patter is generally considered one of the strongest bull or bear sentiment indicators, the pattern is, however, rare. Most professional traders do not rapidly overreact in one direction or another. If, and when the kicker pattern presents itself, money managers are quick to take notice.

The kicker pattern is often regarded as one of the most powerful signals available to technical analysts. Its relevance is magnified when it occurs in overbought or oversold markets. The two candles behind the pattern take on visible significance. The first candle opens and moves in the direction of a current trend and the second candle opens at the same open of the previous day (a gap open), and then heads in the opposite direction of the prior day’s candle. The bodies of the candles are opposite colors in many trading platforms, offering this formation a colorful display of the dramatic change in investor sentiment. Because the kicker pattern occurs only after a significant change in the market’s attitude; the indicator is often studied with other measures of market psychology or behavioral finance.

Trading the Powerful Kicker Pattern

Last Updated: August 9, 2020

A huge news story can act as a “kick in the butt” for investors. Whether the event involves a change in company management, hype surrounding the announcement of a new product or service, or a worldwide news story, the resulting change in investor sentiment can cause prices to fly up or jump down. In some of these instances, a Bearish Kicker candlestick pattern will occur. This two-candle signal announces that investors have changed their minds about a stock, causing it to gap down and then continue falling in price. It is a very influential and powerful signal, so you would do well to heed its warning! But first, you will need to learn how to identify it, understand it, and interpret its formation . . .

Bearish Kicker Candlestick Pattern

Formation

If this is your first time working with a Bearish Kicker candlestick pattern, you will need to know the visual characteristics that define it. To identify a Bearish Kicker, check for the following criteria:

First, there must be a white (bullish) candlestick. Second, the white candlestick must be followed by a black (bearish) candlestick that opens below the first candlestick, forming a gap. Third, the price during the formation of the second candlestick must never rise into the gap. Due to this stipulation, you will rarely find a top wick on the second candlestick.

Although the Bearish Kicker pattern doesn’t need to occur after a lengthy uptrend, it sometimes does, emphasizing the abruptness of the change in investor sentiment. You may also see the opposite formation (a black candle followed by a white candle that gaps up and never drops into the gap), which is known as a Bullish Kicker candlestick pattern.

Meaning

When the first candlestick opens, the price has an upward direction and that rising movement continues throughout the day. However, the following day’s candlestick, while opening at or near the previous day’s open, continually moves the price downward. The price never rises into the previous day’s trading range, causing a gap. Due to this significant change in direction, it’s usually safe to assume that the second candlestick’s downward movement will continue for a fair amount of time.

Bearish Kickers often appear after a startling news event that causes an abrupt change in investor sentiment before or after market hours. It is most relevant when it forms in an oversold or overbought area, but regardless of the area or trend, the gap between the candlesticks illustrates a strong and meaningful change. There is a high level of selling pressure as well.

Once you know the basic formation, you can watch out for unique elements that tell you more about the pattern’s prediction. To better understand the Bearish Kicker candlestick pattern, look for these characteristics:

  • The longer the candlesticks, the more dramatic the reversal.
  • The larger the gap, the more significant the reversal.

Examples

Now that you’ve learned the basic formation and meaning of a Bearish Kicker candlestick pattern, it’s time to put your skills to the test. After all, just because you understand what the signal looks like and what it expresses about current investor sentiments, that doesn’t mean you can translate your knowledge to the real world. In the examples below, could you identify the Bearish Kickers even without the handy labels? Could you describe what the pattern conveys about the market? Review the examples below to further your Japanese candlestick education.

EXAMPLE 1:

As you can see, near the middle of the chart, an enormous green candle conveys a huge jump in price. Following this upward spike, there is a short dip before a solid uptrend emerges. Five green candles mark this trend, and the last candle forms the first half of the Bearish Kicker. Following a gap down, we see the second half of the signal: an extremely long, red candlestick. As expected, this reversal heralds the start of a downtrend. The price drops and (for the remainder of the chart’s tracking period) never again reaches the height it had before the Bearish Kicker entered the scene.

EXAMPLE 2:

In our second example, despite some dips and red candles, the market progressed steadily upward for the first half of the chart. Even at the very end of this uptrend, just before the tide turns, a tiny candle marks another small upward push. However, that candle is the start of a Bearish Kicker, which concludes the uptrend with a relatively short red candle. Although the price doesn’t drop immediately (and the subsequent green candle doesn’t confirm the reversal), it soon slips down with a series of minuscule red candles. After a somewhat stable period, a huge red candle amplifies the strength of the downtrend. We’ve come a long way down from the market’s earlier heights.

EXAMPLE 3:

In this third example, you can spot both a Bearish Kicker and a Bullish Kicker. After a very short upward spurt near the center of the chart, which begins with a significant gap, the Bearish Kicker appears, and the minor uptrend reverses into a downtrend. Following another gap (moving down this time), the Bullish Kicker steps into action. Its first candle dips down to mark the lowest price on the chart. Then, after a small gap, its second candle appears. As predicted, this signals the start of an uptrend.

Because it indicates such a strong change in investor sentiment, the Bearish Kicker should never be overlooked. In fact, some describe Kicker patterns as the most powerful Japanese candlestick signals of all! As always, however, be sure to confirm your suspicions before you make your next move. A red candle or a gap down can give you greater confidence in the Bearish Kicker’s forecast and increase your peace of mind.

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