Hanging Man Candle

The hanging man candle is a reversal pattern in which a small real body forms at the upper end of the trading range with a long lower shadow with no, or almost no upper shadow. The longer the shadow is the more bearish the reversal. The hanging man occurs during an uptrend and it is named as it looks like a hanging man with dangling legs. When identifying a hanging man candle, there are four criteria that must be met. First, a long lower shadow should be at least two times the length of the real body. Second, there should be no upper shadow or a very small upper shadow with the real body at the upper end of the trading range. (The color of the body is not important, but a black body has slightly more bearish implications). Third, the stock must have been in a definite uptrend before this signal can occur. Lastly, the day after the hanging man is formed confirmation must occur in the form of a black candle or a gap down with a lower close. When identifying a hanging man it is important to note that the longer the lower shadow, the more likely a reversal is to occur and the pattern is slightly more reliable if the real body is black. This candle is considered one of the 12 major signals of Japanese Candlesticks and it is similar to the bullish candlestick hammer signal.

What does the hanging man candle indicate is happening in the markets?
This signal indicates trend exhaustion and suggests a bearish reversal. The long lower shadow of this signal indicates that sellers are stepping into a trend. The price opens higher after a strong up-trend has been in effect but it then starts to move lower as the bears take control. The bulls however still have control and the price is increased at the high end of the trading range, thus creating a small real body. While the bulls were able to keep the price high, selling was still apparent with the bulls losing strength, and a reversal may occur. The lower open or black candle the following day confirms that selling is happening. Basically, even though the sellers brought the market very low, in the end the buyers brought the close price back up near the market open price. This signal indicates that buyers are losing control and bearish traders are gaining strength.

The 12 major candlestick signals are very important to learning how to play the stock market. In addition to the hanging man, you should learn about other signals such as the doji candlestick chart, the bullish engulfing pattern, the bearish engulfing pattern, and the inverted hammer candlestick. Not only is it important to be able to detect when a signal is occurring but it is also important to understand what each signal indicates may occur in the markets. Continue to learn to increase your profit through candlestick trading online and join me in my 2-Day Trading for Profits Online Training Clinic.

Continue your Japanese Candlestick education and read about the candlestick peircing pattern.