Hanging Man vs Hammer Candle: What’s the Difference?


Look at the image below; the white candlestick is a perfect “hanging man” example in the USD/CAD pair. If you highlight them all on a chart, you will find that most are poor predictors of a price move lower. Look for increased volume, a sell-off the next day, and longer shadows—the pattern becomes more reliable. Don’t forget to utilize a stop loss above the Hanging Man high if you are going to trade it.

This pattern typically emerges at the peak of an uptrend, signaling potential bearish reversal. Its recognition is crucial as it suggests that despite the buyers’ initial control during the session, sellers gained ground, pushing prices lower, before a close near the open. However, the pattern alone is not a definitive indicator of a trend reversal; it requires confirmation through subsequent bearish price action or increased selling volume. Mastering candlestick patterns is a helpful skill for any forex trader seeking to gain an edge in the huge currency market.

Making use of a shorter time frame chart (4 hour chart), identify the ideal entry point. The hanging man candle formation provides us with a signal for a short trade. It is important to view the hanging man candle formation in relation to the long term trend.

The hanging man is essentially a bearish version of the hammer candlestick. The candle has a relatively small body with a long wick towards the downside, indicating that the market is seeing strong selling pressure. The appearance of a hanging man candle after an uptrend shows that selling interest is beginning to rise, so a downward correction or a new downtrend may ensue.

According to the book Encyclopedia of Candlestick Charts by Thomas Bulkowski, the Evening Star Candlestick has a 72% chance of accurately predicting a downtrend. The Evening Star is a bearish reversal pattern that occurs at the top of an uptrend. It https://g-markets.net/ is a 3-day pattern composed of a large bullish candle on day 1, a small candle on day 2, and a large bearish candle on day 3. Candlesticks can also be used to monitor momentum and price action in other asset classes, including currencies or futures.

  1. These are significant price levels that have been approached in the past but have not been broken; or have been broken momentarily before reversing direction.
  2. With volume you don’t only get to know how the market moved, but also the conviction of the market.
  3. In other words, prices need to rise from the lower left to the upper right.
  4. Other tools for the strategy are the resistance levels and, of course, the Hanging Man pattern.

But we also like to teach you what’s beneath the Foundation of the stock market. Some of you might be wondering, what’s with the different candle color possibilities? It is the location of the hanging man, the volume that ensues, the length of the wick, and the continuation of the downtrend that should be noted. Join thousands of traders who choose a mobile-first broker for trading the markets. Some traders believe it is a reliable indicator; many think it is a poor indicator. It’s possible that accuracy lies in how each trader uses it with the other available information.

However, one important thing to remember is to not rely on the hanging man candle alone. No pattern on its own should be used whilst conducting technical analysis, as false signals are often possible. It could turn out that the buying pressure is still high, but the market experienced a sudden inflow of sales. For this reason, you should always use the hanging man candlestick pattern with other indicators to avoid reacting to false signals.

What is the success rate of the hanging man candlestick?

It has to be used with a trend confirmation tool all the time for accuracy. The hanging man is one of the few indicators that give traders an early warning sign of a trend reversal to bearish. Here is an example of trading with a hanging man candlestick pattern.

Hanging Man Candlestick Definition and Tactics

Hanging man candles can also look like spinning tops with an upper wick. They are indecision candles that happen near resistance levels and signal a potential reversal is about to take place. The hammer candlestick pattern is the hanging man pattern, but for a bearish trend. So it looks the same as a hanging man, the only difference is the location! You can find the hammer candlestick pattern at the bottom of a bearish trend looking to turn bullish.

Why should you look out for the hanging man candlestick?

Bulkowski’s research also supports the theory that strong trading volume accompanying the Hanging Man leads to more successful trades. Of the many candlesticks he analyzed, those with heavier trading volume were better predictors of the price moving lower than those with lower volume. Because it is a reversal pattern, there must be a trend of some length before the appearance of the pattern. The market doesn’t need to be in a long uptrend, but there must be a recognizable price rise preceding the pattern. The Hanging Man candlestick pattern is characterized by a short wick (or no wick) on top of small body (the candlestick), with a long shadow underneath. If the candlestick is green or white, the asset closed higher than it opened.

Never Second-Guess a Trade Again

This article represents the opinion of the Companies operating under the FXOpen brand only. Most of the disadvantages of hanging man may be overcome by using a trend-confirming tool or another technical indicator. Hanging man often gets overanalyzed because the information is limited for the traders. Usually, the pattern with longer lower shadows seems to have performed better than the Hanging Man with shorter lower shadows.

While the Hanging Man pattern is a powerful tool for anticipating potential market reversals, it should not be used in isolation. Instead, it should be incorporated into a comprehensive trading strategy, complementing other forms of analysis like trend analysis or technical indicators. Another strategy that can use the Hanging Man pattern is mean reversion. In this strategy, the trader believes that the price would fall back to its mean after trading significantly away from it. To implement this strategy, the trader may use a moving average indicator to know the mean and use the RSI or any other momentum oscillator to identify when the market seems overbought.

The hanging man can appear in all markets however, due to the depth and volume in forex you will find the hanging man appearing frequently in forex. Forex is one of the most liquid markets in the world with an average daily trading volume in excess of $5 trillion making it attractive to a lot of traders. If you are unsure of what forex is or how to read a quote read hanging man candlestick our New to Forex Guide. Traders often look for a longer wick to form, the longer the more meaningful. The hanging man is also not a stand-alone pattern, the second you see a hanging man does not mean this is the second you should short! A continuation of the reversal on this candle print would be a gap lower on the following day, or a candle that prints lower.

This decision is based on technical analysis, as well as your trading plan, which dictates taking profits on shorts near clear support levels. The following bullet points explain the essential characteristics of the hanging man candlestick pattern in greater detail. An entry is placed on the next bearish candlestick with a stop loss just above the hanging man.

This is an example of a hanging man candlestick formation on a daily chart of $GLD, a gold stock. This is why it’s important to know support and resistance and the bigger overall patterns because patterns do fail. The hanging man candlestick can be analyzed as an entry or exit indicator for traders. The entry would be to the short size as traders might see exhaustion to the upside. Alternatively, the hanging man can be seen as an exit indicator, where long traders take profit.

One such candlestick pattern is called “hanging man”, and that’s the topic for this article. A bearish hanging man pattern occurs when a candle’s opening price is above the closing price. Of the three types of the hanging man pattern, this one is the strongest reversal signal. A hanging man candle is an example of selling pressure coming into the market but repudiated as traders believe the overall long-term trend should continue to the upside.

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