Hanging Man |
Characteristic of Candlesticks: Reversal
Relevance of Candlesticks: Bearish
Prior Trend of Candlesticks: Bullish
Reliability of Candlesticks : Confirmation Required
Confirmation of Candlesticks: Suggested
Candlestick Patterns Key Reference |
DESCRIPTION
Hanging Man is a reliable pattern which indicate a trend has come to the end and it is about to reverse.
Hanging Man pattern is recognized by a long lower shadow as shown from the second candlestick (Hanging Man) with a small real body and the previous candlestick have a long bullish real body.
PATTERN RECOGNITION
1. Hanging Man pattern can be identified by an uptrend.
2. Refering to above diagram, we will firstly see a bullish candlestick formed at the top of an uptrend.
3. Then we will see the second candlestick formed at the upper end of the previous candlestick.
4. The (bull/bear) of the candlestick is not significant, however the first candlestick is a bullish candlestick.
5. No gap down above the previous candlestick is required when Hanging Man is formed as long as it is seen after an uptrend.
6. The lower shadow of the second candlestick (Hanging Man) small body should be at least twice as long as its real body.
7. The second candlestick (Hanging Man) does not have upper shadow or only very little upper shadow.
EXPLAINATION
The Hanging Man pattern is a sign of trend reversal.
When the second candlestick (Hanging Man) is formed, the market opens at or near its high.
Then the price change in direction and we will see a short-term downtrend.
However the bears cannot substain its strength during the rest of the day and the prices rally up and close at or near the high of the previous candlestick.
Although we see the Hanging Man does not give us a clear potential reversal signal, but if the next candlestick opens below the real body of the hanging man, that means those who execute long at the opening or closing of the Hanging Man is in the losing position.
The longer the market holds below the Hanging Man's real body, the more likely these buyers will intend to close their buy orders.
This may initiate a drop in price as a result by the closed buy orders, giving sellers a chance to go for short position.
The Consolidation Patterns imply that the trend may have ended and may go sideways. There is a possibility of a reversal but would require confirmation in the next session.
POINT TO NOTE
A confirmation is required in a form of a bearish candlestick which open below the hanging man's real body. The larger the gap the stronger the confirmation.
A bearish candlestick with a lower close act as an affirmation.
CANDLESTICK PATTERNS KEY REFERENCE
Irrespective of Color (Can be bullish or bearish) |
Uptrend |
Consolidation |
Downtrend |
ANTICIPATED DIRECTION OF TREND
Lighter Arrow = Lower Probability
Solid Arrow = Higher Probability
More Likely to go sideway, Less likely to rally
|
More likely to rally, Less likely to go sideways
|
More likely to go sideway, Less likely to fall
|
More likely to fall, Less likely to go sideways |
