Kicker Pattern: What it is, How it Works, Example

What Is a Kicker Pattern?

A kicker pattern is a two-bar candlestick pattern that predicts a change in the direction of an asset's price trend. This pattern is characterized by a 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' attitudes toward a security. The change in direction usually occurs following the release of valuable information about a company, industry, or economy.

Understanding the Kicker Pattern

The stock market is characterized by competing buyers (bulls) and sellers (bears). The constant tug of war among these players is what forms candlesticks patterns. Candlestick charting originated from a technique developed in Japan in the 1700s that tracked the price of rice. Candlesticks are a suitable technique for trading any liquid financial asset such as stocks, futures, and foreign exchange.

The kicker pattern is considered one of the most reliable reversal patterns and usually indicates a dramatic change in a company's fundamentals. The kicker pattern is a reversal pattern, and it differs from a gap pattern, which tends to show a gap up or down and stay in that trend. The patterns look similar, but each implies something different.

Kicker patterns are either bullish or bearish. Bullish kickers start with a bearish candle and then show a bullish gap up. Bearish kickers start with a bullish candle and then show a bearish gap down.

How the Kicker Pattern Works

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 wishing they had entered a position when they originally identified the kicker pattern.

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

The kicker pattern is 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 on many trading platforms, creating a colorful display of the dramatic change in investor sentiment. Because the kicker pattern occurs only after a significant change in the investor attitude; the indicator is often studied with other measures of market psychology or behavioral finance.

Example of a Bearish Kicker Candlestick Pattern

The Bearish Kicker Candlestick Chart pattern's reliability is high when it is formed at the uptrend or formed in an overbought area.

On day 1, one candlestick continues an uptrend and is, therefore, bullish in nature. It has no significance on its own when formed in an uptrend.

On day 2, a bearish candlestick emerges. The candlestick opens at the same price as the previous day (or a gap down) and then heads in the opposite direction of the Day 1 candle. For this pattern to be valid, the second day’s candle should open at or lower than the first day’s candle. Traders commonly expect that a gap down before the second day’s candle will increase the chances that prices will continue to fall after the second day is done.