Hanging man candlesticks are found near resistance levels or at the top of uptrends. They are shaped like a hammer with a long 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 a break below the candle to confirm a reversal to the downside.
A hanging man candlestick is typically found at the peak of an uptrend or near resistance levels. These candlesticks look like a hammer and have 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.
For example, the hanging candlestick happens when there’s a significant sell-off at the market opening. Then the buyers return and push the price back up so it ends near its opening.
The hanging man candlestick meaning is a sign that buyers are losing control. It is 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.
When stock trading look at the war of the bulls and the bears as a football game. When the Bulls score touchdowns, the bullish candlesticks are controlling the chart. When the Bears are scoring touchdowns, the bearish candlesticks are dominating.
This pattern confirmation is easier to find on intraday charts than on daily charts. That is why it is popular among day traders. Buyers have not lost control, but the shorts are coming in. 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.
Traditionally considered a bearish candle, but can also be used to provide continuation. Hence why finding the patterns within the patterns is so important. When used in a continuation, the short sellers are sucked in. Which creates a short squeeze pinching the price rather than dumping it. That is why traders need the confirmation of other candlesticks and technical analysis.
Hammer candlesticks and hanging candles look the same. However, they are different.
The hammer is formed at support; while the hanging man candle is formed at resistance.
How to Trade Hanging Man Candlesticks
- Traders take a shot at the break of the low and use a close above the high as a stop.
- Some traders go long when the price breaks above the candlestick’s high.
- Then use a candlestick close below the low as a stop level.