Hanging Man Candlestick Patterns

the Hanging Man has the same shape as the Hammers; the only difference is that a hanging man comes after an advance see in images. Because a long lower shadow is viewed as a plus and since the hanging man has such a shadow, it is especially important that one wait of bearish confirmation with the hanging man. At a minimum this would be a lower opening under the real body of the hanging man. but I usually recommend a close beneath the hanging man.

The reason for waiting for a close under the hanging man’s real body is that if the market close lower the next day, those who bought on the open or close of the hanging man day are now left “hanging” with a losing position. this is why I would also like to see the hanging man at an all-time high, or at least at a high for significant move. in this scenario the longs entering on the hanging man session are in their position at new highs, thus making them more nervous. consequently, those longs might decide to back out of their now losing position. that could cascade into more selling pressure. Note how the second small real body was a hanging man whose bearish implications were confirmed by a lower close the next session.

hanging man
Gold Charts-30 min. 22nd April 2021

Trading the Hanging Man

The hanging man patterns that have above average volume, long lower shadows and are followed by a selling day have the best chance of resulting in the price moving lower. Therefore, it follows that these are ideal patterns to trade off of. 

Upon seeing such a pattern, consider initiating a short trade near the close of the down day following the hanging man. A more aggressive strategy is to take a trade near the closing price of the hanging man or near the open of the next candle. Place a stop-loss order above the high of the hanging man candle. The following chart shows the possible entries, as well as the stop-loss location.

One of the problems with candlesticks is that they don’t provide price targets. Therefore, stay in the trade while the downward momentum remains intact, but get out when the price starts to rise again. Hanging man patterns are only short-term reversal signals.

Candlestick Patterns