Bearish Kicking

The bearish kicking is a rare two-bar bearish reversal Japanese candlestick pattern that leads to near-term bearish volatility, as demonstrated by backtests.

Data-driven traders should avoid this pattern in the crypto and forex markets as there are not enough data to determine statistically significant trading strategies.

But before you pass on this one, what it lacks in frequency, it makes up in profitability.

If this excites you, let’s learn how to trade this bearish-kicking candlestick pattern in a data-driven way.

What Is a Bearish Kicking Candlestick Pattern?

Bearish Kicking Candlestick Pattern Illustration © Analyzing Alpha
Bearish Kicking Candlestick Pattern Illustration

The bearish kicking is a two-bar pattern that most traders consider a bearish reversal pattern. And while the data does suggest this is true, it’s more likely a sign of incoming volatility.

The bearish kicking name comes from the candles kicking away from each other on a candlestick chart.

But before we dive into the history of these kicking candlesticks, let’s learn how to identify them on our candlestick charts.

How to Identify the Bearish Kicking Candlestick Pattern

Bearish Kicking Candlestick Pattern Identification on the Carver Bancorp (CARV) February 23rd, 2005 daily chart
Bearish Kicking Candlestick Pattern Identification on the Carver Bancorp (CARV) February 23rd, 2005 daily chart

The following are the requirements for a valid bearish kicking pattern:

  • The first candle must be a bullish marubozu.
  • The second candle must be a bearish marubozu.
  • There must be a downside gap between the two marubozu candles.

We see the bearish kicking on the Carver Bancorp (CARV) February 23rd, 2005, daily chart.

The first-day candlestick is a green marubozu followed by a gap and a bearish marubozu. Since no trend is required for the kicking candlestick patterns, we’ve fulfilled all the requirements for a valid pattern.

Now that we know how to identify this bearish reversal pattern, let’s learn how to kick our profits into high gear.

How to Trade the Bearish Kicking Pattern

The bearish kicking is traded optimally using a bullish mean reversion setup in the stock market. We do not have enough data to determine the best setup for the crypto and forex markets.

But before we optimize, let’s learn how most professional traders make suboptimal profits.

Bearish Kicking Bearish Reversal Trade Setup

Bearish Kicking Bearish Reversal Trade Setup on the KT Corporation (KT) September 2nd, 2021 daily chart
Bearish Kicking Bearish Reversal Trade Setup on the KT Corporation (KT) September 2nd, 2021 daily chart

We see two marubozu candles in the requisite order –  a bullish white marubozu candle followed by its bearish black marubozu counterpart. With the pattern identified, it’s time to look for a trend.

Traditional traders enter short on a break of the low of the second marubozu and place a stop loss above the high of the first marubozu.

This trade was profitable for the KT Corporation bearish reversal traders, but we can profit more by expecting volatility instead of a price reversal.

Bearish Kicking Bullish Mean Reversion Trade Setup

Bearish Kicking Bullish Mean Reversion Trade Setup on the Fidelity D&D Bancorp (FDBC) March 16th, 2021 daily chart
Bearish Kicking Bullish Mean Reversion Trade Setup on the Fidelity D&D Bancorp (FDBC) March 16th, 2021 daily chart

Let’s practice our candlestick charting and identify the bearish kicking again.

We see a long bullish green marubozu followed by a red marubozu with a downward gap, meaning its open is lower than the previous bullish marubozu’s close. These two candles give us the bearish kicking as we don’t need to consider the trend.

With the kicking candlestick identified, the best trading strategy for stock traders, according to history, is to wait for the price to cross below the pattern’s low and enter long when prices come back up through the same low with a stop loss of one ATR.

Let’s make this crystal clear using the Danaher example above.

The low of the bearish kicking occurs at $58.17 on the second day’s bearish candle. On the first day after pattern identification, the price opens higher and drops below our target entry, so no action is taken. The day after, the price increases but doesn’t exceed our target of $58.17. On March 19th, 2021, the third day after pattern identification, we see that price moves back up above our target, triggering an entry at $58.17

So what does past performance tell us how quickly can we expect this trading strategy to compound?

Does the Bearish Harami Cross Pattern Work? (Backtest Results)

Using the following rules, I backtested the bearish harami cross candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Many candlestick patterns have similar candlesticks to the bearish harami cross. It’s essential to understand the differences between these related patterns when using candlestick pattern technical analysis.

Bullish Kicking vs. Bearish Kicking Candlestick Patterns

Bullish Kicking Candlestick Pattern © Analyzing Alpha
Bullish Kicking Candlestick Pattern

The bullish kicking candlestick pattern is the mirror opposite of the bearish kicking. Both require two marubozu candlesticks with a gap between them. The bullish kicking starts with a black candle on the first day, followed by a white candle on the second.

Whereas, as we’ve just seen, the bearish requires a white candle on the first, followed by a gap, then a black candle on the second. 

Kicking by Length vs. Bearish Kicking Candlestick Patterns

The kicking by length is an alternative identification strategy.

The pattern requires two marubozu candlesticks moving in opposite directions with a gap between them, precisely the same as the bearish kicking or bullish kicking; however, instead of the second candlestick dictating whether or not the pattern is bearish or bullish, it’s the length of the larger marubozu.

For instance, if the first day is bullish and has a larger marubozu than the previous day, the pattern is considered a bullish kicking by length. This same pattern could also be a bearish kicking as the second day is bearish.

The Bottom Line

The bearish kicking rarely occurs in the stock market and seldom on the daily chart in the crypto and forex markets. Again, while the traditional bearish reversal trading strategy does provide profits, it’s suboptimal, according to data.

By trading this pattern as a bullish mean reversion and assuming the market psychology of this pattern will stay consistent, and history will hold, informed traders could have substantially better future results.

Kicking your trading into high gear and check out my post where I backtested and ranked all candlestick patterns.

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