What is Hanging Man Candlestick and how reliable is it?

What is Hanging Man Candlestick? Find out what means when you find the hanging man candlestick in your charts

Do you want to know how the Hanging Man Candlestick look like and when can you find it in your chart? Watch our latest video to learn where to find a not so easy to spot candlestick.

The reliability of Hanging Man Candlestick – What does it say when it’s present?

Hello, traders! So today, we are going to review one Candlestick pattern that is well-known because of its reliability. It’s not so easy to identify and to spot it on the charts, so you’ll spend quite a lot of time trading without finding this Candlestick pattern on your chart, but once it is found, usually, it offers a good signal to the traders that we are about to have a trend reversal, either we are reversing in the moment or the bulls are losing the control. So, The Hanging Man it’s a Bearish Candlestick pattern, and usually, it is formed at the end of an uptrend.

So, here we have the Dollar/Yen hourly chart. You can see an uptrend here, and then you have a big, long, bullish candle here, and then, you have a candle that you can see next to this one, the one that I’m pointing to, it’s a Hanging Man candle. You can see, of course, why it’s called Hanging Man. So, the price opens at the previous close, then goes lower, starts moving lower, then pushes higher and actually closes at the high. What is important for the Hanging Man, is that it’s a more or less a Hammer candle that is formed at the top, and it means, usually, it signals indecision for the traders since you can see here that the price first pushes back, downside and then storms higher and closes at the high. Even though we close at the high, it offers us a glimpse in what is about to come, since there is a selling pressure, so as long as we have the move to the downside, the first move to the downside, it means we have a selling pressure, even though we, in the end, closed at the high. So, it’s important not to mix it with the Doji candle. Doji candle has a weak to the upside and to the downside. So, this would be a Doji candle.

So, the difference is that the Doji closes, usually around where it opened, but the Hanging Man must close at the very top. So, you can see, as I said, this candle, when you look at it, it’s a bullish candle, but it’s an early indicator that a sell-off may be coming sooner rather than later, and the bulls are losing control.

So, as I said, it’s at the end of an uptrend. So, here we have an uptrend and then you have a Hanging Man and then you have the first push to the downside and then second push to the downside, and we start creating new lows, we start creating new highs, which means that we are in the process of creating a downtrend and more or less, everything started with this Hanging Man candle. So, this formation is easily identified usually in the intra-day charts, and it’s very much used by the day traders. If this pattern is found, as I said, if this pattern is found at the end of a downtrend, then we call it a Hammer and it’s a bullish reversal pattern, meaning the downside is finishing and the bulls are regaining control of the price action.

Here is another chart. So, here the Dollar/Yen we talked in a one-hour chart, here is another chart, it’s the Euro/Dollar chart. This is a daily chart, it’s rare to find a Hanging Man on a daily chart, but here is an example of this. So again, we have an uptrend, we create lower lows and higher highs and then, again, as is the case with the Dollar/Yen, we have a long, strong, healthy bullish candle, then we have a Hanging Man. Look at this candle. Even though it has a very, very small uptick, we can tolerate this, but we push all the way to the downside. So, if you look where we closed, we closed at 1.5031, but we pushed to 1.4945, so almost 100 pips we pushed to the downside, but we still managed, before the candlestick has been formed, we still managed to push higher and close at the top. As I said, this will look very healthy, if you’re at the bottom, but if this happened at the top of the trend and we have a long way to the downside, usually we are followed by one or two red candles, bearish candles and then you have a new high, we briefly go to the new high, we closed at the lows, and then this is a definite confirmation, this red candle follow up on the Hanging Man, is a definite confirmation that we are going to start a downtrend, that we are going to start to push to the downside. And from this point, if you look from the point of the Hanging Man, then have 400 pips move to the downside.

So, Hanging Man cannot be triggered immediately, so you cannot really enter the trade here, because, as you can see here, we can go and create a new high. But, as I said, it’s an early indicator, early warning sign that the uptrend is coming to an end and either we are going to have a correction or we are going to actually completely reverse the price action.

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