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14 Key Candlestick Formation
5. Hanging Man
5. Hanging Man
The Hanging Man produces some very important attributes when analyzing a potential reversal. It is considered one of the 12 major signals. Learn how to use a Hanging Man signal correctly. The probabilities of being in a correct trade when utilizing this signal becomes extremely high.
Description
The Hanging Man is also comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. It is found at the top of an up trend. The Japanese named this pattern because it looks like a head with the feet dangling down.
Criteria
The Hanging Man is also comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. It is found at the top of an up trend. The Japanese named this pattern because it looks like a head with the feet dangling down.
Criteria
- 1. The upper shadow should be at least two times the length of the body.
- 2. The real body is at the upper end of the trading range. The color of the body is not important although a black body should have slightly more bearish implications.
- 3. There should be no upper shadow or a very small upper shadow.
- 4. The following day needs to confirm the Hanging Man signal with a black candle or better yet, a gap down with a lower close.
Signal Enhancements
- 1. The longer the lower shadow, the higher the potential of a reversal occurring.
- 2. A gap up from the previous days close sets up for a stronger reversal move provided the day after the Hanging Man signal trades lower.
- 3. Large volume on the signal day increases the chances that a blowoff day has occurred although it is not a necessity.
Pattern Psychology
After a strong up-trend has been in effect, the atmosphere is bullish. The price opens higher but starts to move lower. The bears take control. But before the end of the day, the bulls step in and take the price back up to the higher end of the trading range, creating a small body for the day. This could indicate that the bulls still have control if analyzing a Western bar chart. However, the long lower shadow represents that sellers had started stepping in at these levels. Even though the bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on.
When identifying the Hanging Man signal under the correct conditions, with stochastic in the overbought conditions, at the top of an uptrend, provides the information needed for identifying the possibility of a trend reversal. When learning to play the stock market, being able to put all the probabilities in ones favor is very important. When will an uptrend reverse? When indications start appearing that demonstrate that the sellers are starting to take control! The Hanging Man signal provides the elements that indicate the sellers stepping into a trend. Use this information to your advantage.
After a strong up-trend has been in effect, the atmosphere is bullish. The price opens higher but starts to move lower. The bears take control. But before the end of the day, the bulls step in and take the price back up to the higher end of the trading range, creating a small body for the day. This could indicate that the bulls still have control if analyzing a Western bar chart. However, the long lower shadow represents that sellers had started stepping in at these levels. Even though the bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on.
When identifying the Hanging Man signal under the correct conditions, with stochastic in the overbought conditions, at the top of an uptrend, provides the information needed for identifying the possibility of a trend reversal. When learning to play the stock market, being able to put all the probabilities in ones favor is very important. When will an uptrend reverse? When indications start appearing that demonstrate that the sellers are starting to take control! The Hanging Man signal provides the elements that indicate the sellers stepping into a trend. Use this information to your advantage.
