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10 PRICE ACTION CANDLESTICK PATTERNS YOU MUST KNOW - Part6

The Hammer and Hanging Man candlestick patterns look identical, with a candle body near the top and a long lower shadow around twice the length of the body. The difference is that the Hammer appears at the end of a downtrend and signals a potential bullish reversal, while the Hanging Man occurs at the end of an uptrend and signals a potential bearish reversal. Traders should buy above a Hammer for a reversal play, and sell below a Hanging Man for a reversal only after seeing bearish confirmation of the reversal.

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Jagannath Sahu
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71 views2 pages

10 PRICE ACTION CANDLESTICK PATTERNS YOU MUST KNOW - Part6

The Hammer and Hanging Man candlestick patterns look identical, with a candle body near the top and a long lower shadow around twice the length of the body. The difference is that the Hammer appears at the end of a downtrend and signals a potential bullish reversal, while the Hanging Man occurs at the end of an uptrend and signals a potential bearish reversal. Traders should buy above a Hammer for a reversal play, and sell below a Hanging Man for a reversal only after seeing bearish confirmation of the reversal.

Uploaded by

Jagannath Sahu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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6.

HAMMER / HANGING MAN


CANDLESTICKS
What does it look like?

Let’s get this straight. Both the Hammer and the Hanging Man patterns look exactly the
same.

Both have a:

 Candle body near the top of the candlestick; and

 A long lower shadow (around twice of the candle body).

(Color of the candle body does not matter.)

The difference is this. The Hammer pattern is found after a market decline and is a bullish
signal. However, the Hanging Man appears (as an ill-omen) at the end of a bull run and is a
bearish signal.
What does it mean?

The Hammer pattern traps traders who sold in the lower region of the candlestick, forcing
them to cover their shorts. As a result, they produce buying pressure for this bullish pattern.
Its bar pattern equivalent is the bullish Pin Bar.

The Hanging Man pattern is a seemingly bullish candlestick at the top of an upwards trend.
Infected by its optimism, traders buy into the market confidently. Hence, when the market
falls later, it jerks these buyers out of their long positions. This also explains why it is better
to wait for bearish confirmation before going short based on the Hanging Man pattern.

How do we trade it?

1. In a downtrend, buy above the Hammer pattern for a reversal play. (You can also trade the
Hammer pattern like a bullish Pin Bar.)

2. In a uptrend, sell below the Hanging Man pattern for a reversal play after bearish
confirmation.

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