Kicker Pattern: Examples and Trading Strategies | LiteFinance (2024)

The Kicker candlestick pattern is an effective reversal pattern that can help traders identify potential trend changes. Forming over just two candles, the distinctive Kicker structure provides a robust signal that sentiment is shifting.

In this comprehensive guide, we’ll explaineverything you need to know about trading with the Kicker pattern.

What Is a Kicker Pattern?

The Kicker pattern consists of only two candlesticks and gets its name from the second candle's sharp directional ‘kick’. It signals an abrupt reversal after a healthy preceding trend. If a Kicker forms during an uptrend, it indicates that sentiment is turning bearish; in a downtrend, it flags that the downtrend is losing momentum and bulls are gaining control.

Kicker Pattern Formation

The distinctive Kicker candlestick pattern takes shape over just two candles. First, one candle continues the direction of the ongoing trend. Then, immediately following is an opposite-colored candle that gaps sharply against the previous candle's range. This second "Kicker" candle indicates price rejection and suggests imminent reversal. The sudden change in sentiment of this two-candle formation defines the Kicker pattern.

1. The first candle shows a solid continuation of the preceding trend — for example, a long green candle in an uptrend or a long red candle in a downtrend. This candle confirms market conviction in the ongoing trend.
2. Immediately following is an opposite-colored candle that gaps sharply in the opposite direction above (in uptrends) or below (in downtrends) the prior candle’s open/close. The gap emphasizes the sudden change in market participant mentality.

The gap between the two candles is an essential element of this pattern. This gap signifies a sharp disconnect between the closing price of the first candle and the opening price of the next candle. The visible empty space on the chart emphasizes the sudden change in sentiment between the two candles. It reflects the shift from a biased market to a two-sided price discovery.

This abrupt reversal structure with the confirmation of the gap signals to traders that the prevailing trend is likely nearing exhaustion. Gaps validate the unexpected change in market psychology that defines Kicker patterns.

What Does the Pattern Tell Traders?

The Kicker pattern explains to traders that the ongoing trend is verging into a bullish reversal. It suggests that market sentiment is altered, and the next candle will likely continue the new direction implied by the ‘Kicker’ candle.

By signaling trend exhaustion, the Kicker can alert traders to consider offloading positions riding the old trend. Meanwhile, it offers a potential entry point to trade the new emerging counter-trend. In this way, its valuable insight into market psychology at turning points makes the Kicker a really useful candlestick pattern.

Bullish Kicker Pattern vs. Bearish Kicker Pattern

The Kicker candlestick pattern comes in two main types — Bullish Kickers and Bearish Kickers. Which one forms depends on the existing market structure and trend. A Bullish Kicker emerges within downtrends and signals upside rejection. The Bearish Kicker variety develops within uptrends and warns of building downside rejection. So the directionality of the current trend dictates whether a reversal Kicker pattern will be bullish or bearish in nature. But in either case, the Kicker signals potential exhaustion ahead of the prevailing price movement.

Bullish Kicker Pattern

A Bullish Kicker candlestick pattern forms within a downtrend when bullish momentum begins overtaking selling pressure. A sharp change in psychology occurs after a long red candle extends the downward move, evidencing the bearishness.

The next candle gaps significantly higher above the prior red candle's open or close. This long green candle strongly rejects lower prices and breakouts above short-term resistance levels. It indicates the downtrend is likely becoming exhausted, and upside momentum is building in the opposite direction.

Some key details for identifying valid Bullish Kickers:

• The green candle's body gaps above the upper shadow/wick of the preceding red candle.
• The lower wick shows buyers defended intraday dip levels.
• Healthy upside trading volume adds confidence.
• Bullish divergences may be emerging on momentum indicators like RSI.

Bearish Kicker Pattern

The Bearish Kicker forms in uptrends when selling pressure starts overwhelming buying momentum. After a long green candle drives higher prices, evidencing bullishness, sentiment flips negatively.

The next candle gaps are sharply lower below the prior green candle, breaking below short-term support. This shows downside rejection and early signals the uptrend is struggling. Sellers have assumed control from buyers.

Hints for spotting Bearish Kickers:

• The red candle's body gaps below the lower wick/shadow of the previous candle.
• The upper wick indicates the intraday failure to rally above the resistance.
• Rising sell-side volume adds confidence.
• Bearish divergences may be brewing on indicators like MACD.

How to Identify a Kicker Pattern

There are a few key criteria to identify a valid Kicker:

• It must form within an established trend - either bullish or bearish.
• The first candle continues the expected trend direction.
• The second candle gaps sharply in the opposite direction of similar or greater size.
• The color contrast emphasizes the change in market control.

Pay attention to Kicker signals that form at key chart areas like established support and resistance levels. This adds extra confirmation that the trend is reversing.

Example of a Kicker Pattern

Tesla (TSLA) formed a bullish Kicker reversal pattern on the daily chart on August 11th, 2020, during a correctional downtrend.

On August 12th, a buy order was executed at the opening price of $107.55 to capitalize on the bullish implications of this pattern. A stop loss was placed at $90.90, just below the low of the red candle preceding the bullish Kicker signal. This allowed the trade room to develop while controlling potential losses if it failed.

Over the subsequent weeks, Tesla stock staged an impressive rally as upside momentum took hold following the Kicker pattern. The trade realized healthy profits when shares hit a local high of $167.36 in early September. The Bullish Kicker provided an early entry that maximized capture of the emerging uptrend.

This example illustrates the effectiveness of the Kicker reversal pattern in identifying turning points that can produce profitable trades if timed and managed properly. Traders should incorporate sound risk management principles when acting on Kicker candle signals.

How to Trade Kicker Patterns

Common approaches to trading Kicker patterns include:

• Enter long positions on confirmation of Bullish Kickers.
• Enter short trades when Bearish Kickers form.
• Set stop losses below Bullish Kickers and above Bearish Kickers.
• Target previous trend support/resistance levels.

Since one candle formation can be prone to whipsaws, additional confirmations are recommended. For example, wait for the next 1-2 candles to continue the new trend direction before entering. Using other indicators like volume can also improve accuracy.

Pros and Cons of Using Kicker Patterns

Trading with Kicker candlestick patterns offers traders some useful advantages but also comes with a few drawbacks to keep in mind. On the positive side, Kickers provide clear reversal signals on just a two-candle formation. Their visual gap structure highlights stark sentiment shifts for early warning of trend changes. When validated, they can give early entry into major trend reversals. However, Kickers also have downsides. They will produce false signals from time to time if relied on alone.

Pros

• Clear Reversal Structure. The two candle formations provide a visually distinct pattern that is easy to identify on the chart.
• Gaps Highlight Sentiment Shifts. The gap between the kicker candle and the previous candle emphasizes the surprise shift in market psychology.
• Catch Trend Reversals Early. By signaling exhaustion, Kickers can provide early entry into emerging trend reversals.
• Trades Aligned With Value. The new direction implied by the Kicker tends to reflect the market's fair value.

Cons

• Prone to False Signals. One candle patterns are more susceptible to false breaks without added confirmation.
• Requires Wider Stop Losses. Stop levels need to allow more room for volatility to avoid premature exit.
• Works Best With Confluence. Relying solely on Kickers can lead to being faked out. Using other signals like volume improves accuracy.
• Rapid Reversals Require Quick Action. The abrupt shifts require traders to act fast to capitalize on the developing moves.

So, while powerful when validated, the Kicker is not a perfect pattern. Using prudent analysis around Kicker signals aids in effective usage.

Conclusion

The Kicker candlestick pattern delivers high-value reversal trade signals thanks to its visually distinct two-candle formation. By highlighting sharp sentiment shifts, Kicker structures offer early warning of impending trend changes right as they emerge. Combining Kicker signals with other confluence factors allows traders to pinpoint high-probability reversal trade entry points.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.