Just because a signal is composed of only one candlestick, that doesn’t mean it can’t pack a big punch. Take the Hammer candlestick pattern. Formed of a small body and a long tail, the Hammer sends a strong message nevertheless. This bullish reversal pattern indicates that after a downtrend, the bears drove down the price until the bulls gained control. If it can be confirmed, it signifies that an uptrend is on the way. Let’s dig in a little further to help you better understand and identify this common trading signal . . .
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Perhaps the most macabre candlestick in name, the Hanging Man candlestick pattern is said to resemble a hanging man because of its short body and long shadow (which can look like dangling legs). Occurring after an uptrend, this bearish reversal pattern is composed of only one candlestick and it signifies that the prior uptrend is ending. Momentum is decreasing and the direction of the stock may soon be changing (this is especially likely if you can confirm the Hanging Man with decreasing prices the following day). Although identical to the Hammer candlestick in shape, the Hammer occurs at the end of a downtrend, while the Hanging Man sticks to uptrends.
When you see a Hanging Man, you’ve been warned: a price change may soon be on the way. To learn more about this reversal signal, please scroll down . . .
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