It’s the most powerful candlestick pattern known to chartists. It may not appear very often, but if it does, it’s enough to send traders into an instant buying or selling frenzy. If you don’t know how to spot this, you could find yourself on the wrong end of a sell-off.
The kicker signal crops up on charts showing an extreme change of sentiment. If it appears in an up trend – you can be sure of a sell-off. If it appears in a down trend, then brace yourself for some heavy buying activity.
It looks relatively innocuous …
In a bullish kicker, we have an up candle opening at the same opening price as the previous (down) candle. This means that the price has jumped from the close of the red candle, to the open of the green candle.
Conversely, in the bearish kicker, the red, down candle opens at the same price that the previous day opened at, so the green candle closed the previous day, and then gapped down to where the red candle opened.
The longer the candles are in a kicker, the more dramatic the reversal is, and the formation of a gap between the first day’s open and the second day’s open just makes the signal even stronger.
So, here’s what appeared on the Dow this week …
A text-book kicker candle will be have no or very small wicks, so it could certainly be argued that this isn’t a ‘true’ kicker, with the very small candle on Tuesday, and the already-weakening up trend. However, there’s still a clear colour change in the candles, and a gap down between the opening prices on two consecutive days.
Following that gap down on Tuesday night, the sell-off has been relentless, with no pullbacks into the realm of the gap – this feature really consolidates the kicker, and implies that the new trend is here to stay for a while.
Generally, a kicker occurs where some dramatic news has come out overnight, or while markets are closed, which turns investor sentiment around in its tracks. In this case, speculation about the impeachment of Donald Trump.
So, how do we trade a kicker?
Acting on a kicker takes some confidence – markets are generally moving fast, and it’s too easy to get bumped in conditions like these.
If you want to take advantage of the strong moves a kicker pattern offers, then the safest method is to look for a consolidation pattern, and then get in as the strong move resumes.
Consolidations – the safe way into a kicker
Consolidations are ‘breather’ periods – when prices shoot off upwards or downwards, they don’t just move in straight lines (well, not indefinitely). Instead, they move upwards, then they’ll consolidate – this could be a period or sideways movement or a pullback – then they resume their move.
Consolidation patterns are the safe spots in a trend for traders to jump in. They come in various guises: rectangles, pennants, flags, triangles … but the basic thing we’re looking for is the price bouncing between two tight lines (the lines are either parallel or moving closer together) …
If the kicker move is very strong, these ‘holding’ patterns may be quite subtle, but we’re looking for a consolidation to form, and then a break out of it to make our move.
All in all, kickers are consider the most powerful candlestick pattern you can find … for that reason, it’s vital that you can spot them when they crop up, and also that you treat them with some caution if you’re in the market. They inevitably come with volatility, so watch your stops if you want to enjoy the ride!