What Is a Hanging Man Candlestick & How to Trade These Candlesticks?
Hanging man candlesticks are found near resistance levels or at the top of uptrends. They are shaped like a hammer with a longer shadow and little to no upper wick. They are a bearish reversal pattern. These candles are typically red or black on stock charts. Look for break below candle to confirm reversal to the downside. Watch our video on how to identify and trade the hanging man candlestick pattern.
What Is a Hanging Man Candlestick Pattern & How to Identify These Candlesticks?
A hanging man candlestick is typically found at the peak of an uptrend or near resistance levels. These candlesticks look like a hammer and has a smaller real body with a longer lower shadow and no upper wick. They are typically red or black on stock charts.
Hanging man candlesticks form when the end of an uptrend is occurring. The hanging candlestick happens when there’s a significant sell off at the market open. Then the buyers come back in and push price back up so that it ends near it’s opening. Watch our video above to learn more about how to trade them. We get our candlestick charts from Japanese rice trader Homma. He saw the correlation between emotion and price action hence the Japanese candlesticks patterns he came up with.
Nothing has changed even hundreds of year later. Greed and fear will always affect the way we trade.
Basics of Hanging Man Candlestick Patterns
The hanging man candlestick meaning is a sign that buyers are losing control. It’s an early warning to the bulls that the bears are coming. The red flag is there even though the bulls regained control at the end of the day.
You can look at the war of the bulls and the bears as a football game when stock trading. When the bulls are scoring touchdowns we see the bullish candlesticks in control of the chart. When the bears are scoring touchdowns the bearish candlesticks are dominating.
This pattern confirmation is easier to find on intraday charts as opposed to the daily chart. That’s why it’s popular among day traders. Buyers haven’t definitely lost control but the shorts are coming in.
Confirmation of Hanging Man Candlesticks
With the hanging man candlestick chart pattern, you need confirmation that the reversal is happening. The hanging man candle can result in a fake out.
It’s traditionally considered a bearish candle but it can also be used to provide continuation. That’s why being able to find the patterns within the patterns is so important. When they are used as continuation the short sellers are sucked in. Instead of price falling, it’s squeezed higher. That’s why you need the confirmation of other candlesticks and technical analysis basics. It’s important to remember that candlestick patterns aren’t foolproof and fail a lot.
Since the hanging man candlestick pattern can be used to trick the short sellers, you can use technical analysis to confirm the move. Candlesticks are the most important tool you will learn.
The real bodies and wicks are used to learn how to draw support and resistance. Hanging candles are formed at resistance to signal a bearish reversal.
A stock is in a bullish trend tends to get overextended, moving away from the moving average lines. Those moving averages, such as the simple moving average formula, provide equilibrium to a stock. Read our stock market for beginners post for more of the basics.
A stock usually like to return to equilibrium hence the hanging man candle making that signal of a possible reversal. Since the hanging candle is popular among day traders, the VWAP trading strategy is a strategy that you can take advantage of.
We teach how to trade hanging candles on our live daily streams. Check out our trading service to learn more.
Why Is a Hanging Man a Bearish Candlestick?
A hanging man is a bearish candlestick that’s found at the top of an uptrend or near resistance levels. It becomes a bearish pattern when price action can’t break above prior resistance levels and hold.
The Patterns Within the Pattern
Candlesticks with smaller real bodies tend to look similar. Never get caught up in spending so much time deciphering what a candle is. Look at the overall big picture.
Hammer candlesticks and hanging candles look the same. They’re different because the hammer is formed at support while the hanging man candle is formed at resistance.
When you’re looking at the whole picture you might see them in a head and shoulders pattern or a cup and handle.
Being able to see the pattern within the pattern is important. Take our free candlestick reversal patterns course.
How to Trade Hanging Man Candlesticks
- Traders take a short at the break of the low and use a candlestick close above high as a stop.
- Some traders may take a long position when price breaks above the high of the candlestick.
- Then use a candlestick close below the low as a stop level.
Studying the hanging man candlesticks along with patterns and technicals will help you become a good trader. Even the best traders fail 30 to 40% of the time.
Not every pattern is going to do what you’d like it to. But the more you study and practice using these tools in your trading, the better you’ll be. Take our candlesticks patterns course as well as our other free online courses.