What it means
Technical analysts study price charts to look for patterns that suggest what could happen next. A common chart type is the candlestick chart, where each candle shows the opening, closing, high and low price for a day.
The kicker pattern is made up of two candles in a row that tell a story of a sudden change in sentiment. In a bullish kicker, the first candle is a down day, where the price closed below its open.
The next day opens at or above the previous day's open, leaving a gap, and closes higher, so the market has flipped from selling to buying. A bearish kicker is the reverse, with an up day followed by a gap down and a fall.
The pattern is viewed as powerful because the gap shows that something changed overnight. Often that is a surprise such as an earnings report, a takeover offer or a regulatory ruling.
Traders reason that investors who were positioned one way have been caught out and must now rush to change direction. Analysts often look for extra confirmation before acting, such as unusually high trading volume on the second day or a follow-through move on the third.
They also check where the pattern appears. A bullish kicker after a long decline is taken more seriously than one in the middle of a choppy sideways market.
Like all chart patterns, the kicker is not a guarantee. Results vary, and the signal can fail if the news that caused the gap turns out to be less important than first thought.
Traders usually set a stop-loss, which is an order to exit if the price moves against them, to control the risk. For non-specialists, the main value of understanding this pattern is recognising the language in market commentary and analyst notes.
It explains why a share that gaps sharply on news may keep moving the same way for a few days. It does not replace analysis of the company itself.
In practice
Real-world examples.
Example
A retailer's shares fall for three days and close at $40 on a down day after an open of $42. The next morning the company announces a surprise takeover offer and the shares open at $46, above the prior open, then close at $49. A chart analyst labels it a bullish kicker and expects further gains.
Example
An airline's shares close up for the day at $30 after opening at $28. Overnight it warns that fuel costs will hurt profit, and the next day the stock opens at $26 and closes at $24. A trader sees a bearish kicker and reduces her holding.
Example
A fund manager reads a technical research note that mentions a kicker pattern in a pharmaceutical stock after a trial result. She notes that the pattern appeared with record volume, but she still reads the trial data before making any decision.
Case study
Seen in the real world.
Orchard Lane Securities is an illustrative, fictional brokerage whose analyst followed a mid-sized food producer. The shares had slid from $25 to $18 over six weeks, ending one session as a down day at $18 after an open of $18.50.
The next morning the company announced a new supply contract and the shares opened at $20, well above the previous open, closing at $21.50. The analyst flagged a bullish kicker and noted that volume was more than three times its recent average.
She advised clients that the pattern was supportive but not decisive, and suggested a small position with a stop-loss at $19. The illustrative lesson was that the pattern told her when sentiment had turned, while the company news and risk limits told her how much to commit.
Watch out
Common mistakes.
- Treating a kicker pattern as a guaranteed signal, when it is only one clue and can fail if the news behind the gap fades.
- Ignoring volume, since a gap on thin trading is much less meaningful than one backed by heavy buying or selling.
- Confusing a kicker with an ordinary gap, which only counts as a kicker when the second candle clearly reverses the direction of the first.
Questions
People also ask.
What is the difference between a bullish and a bearish kicker?
A bullish kicker is a down candle followed by a gap up and an up candle, and a bearish kicker is the reverse, a gap down after an up candle.
Why do traders pay attention to it?
The gap suggests a sudden change in expectations, which can cause investors who were on the wrong side to rush to change positions.
Does it work in all markets?
It can appear in shares, currencies and commodities, though it is clearest in markets that close overnight, where gaps are more frequent.
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