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Hanging Man Candlestick

A bearish financial candlestick pattern that represents a potential reversal in an uptrend

What is the Hanging Man Candlestick?

The “hanging man” is a bearish financial candlestick pattern that represents a potential reversal in an uptrend. In particular, a hanging man pattern forms at the end of an uptrend. Due to the uptrend reaching its peak, a reversal is likely to occur. The hanging man candlestick pattern is shown below:

 

Hanging Man Candlestick

 

The hanging man also indicates that there was a notable sell-off during the day, which was unable to be pushed back up again by the buyers.

 

Summary

  • The “hanging man” is a candlestick pattern that represents a potential reversal in an uptrend.
  • The hanging man candlestick pattern only occurs if it includes a small real body, long lower shadow, and the asset’s been in an uptrend.
  • A candlestick is a type of price chart used to display information about a security’s price movement.

 

How Does the Hanging Man Occur?

The hanging man candlestick pattern only occurs when two criteria are met:

  1. The hanging man candlestick comprises a small real body and a long lower shadow.
  2. The financial asset has been in an uptrend.

 

When a hanging man candlestick forms in an uptrend, it shows a loss of buyer strength. The hanging man candlestick represents high demand and significant selling. Due to the high demand, buyers can push the stock price near the opening, but a peak is near. The forecasted peak and eventual downtrend provide investors an opportunity to sell existing short positions.

  • Real Body: The wide, box-like section of a candlestick. It examines if a stock’s closing price was greater or less than its opening price.
  • Shadow: Sometimes referred to as the wick, a shadow is a line on a candlestick that is used to indicate where the stock price varied relative to the opening and closing prices.

 

What is a Reversal and an Uptrend?

A reversal is a price direction change of an asset. For example, if an asset was experiencing an uptrend, it would not be beneficial for a reversal to occur. It is because it would change the price direction of an asset downward. For a hanging man candlestick pattern, the reversal is generally short term.

An uptrend represents the upward price movement of an asset.

 

What is a Candlestick?

A candlestick refers to a type of price chart that is used in technical analysis to display information about a security’s price movement. A candlestick displays high and low prices of securities, along with their opening and closing prices over a specific period of time.

 

What are the Features of a Candlestick?

Below are the three basic features of a candlestick that measure security price:

  1. Body: Represents the open-to-close price range.
  2. Wick: Used to indicate intra-day highs and lows.
  3. Color: Reveals the direction of market movement. Green or white candlesticks represent a price increase, while red or black represents a price decrease.

 

Bearish, Bullish, and Continuation Candlestick Patterns

Candlestick patterns are technical trading tools used in finance to predict price direction. Candlestick patterns are divided into three groups – bearish patterns, bullish patterns, and continuation patterns.

Each of the groups below contains separate indicators on the trajectory of price direction.

  • Bearish: Most commonly, bearish candlestick patterns form an upward trend and signal a point of reference. Examples of bearish candlestick patterns include the hanging man, shooting star, evening star, three black crows, and the dark cloud cover.
  • Bullish: In most cases, bullish candlestick patterns form after a downtrend in the market. They are also known to signal a reversal of price movement. Examples of bullish candlestick patterns include the hammer, inverse hammer, piercing line, morning star, and three white soldiers.
  • Continuation: Continuation candle patterns represent no change in market direction. They can help the trader identify rest periods in the market or when the market trends in a similar direction. Examples of continuation candle patterns include the spinning top, falling three-method, rising three-method, and Doji.

 

More Resources

CFI offers the Certified Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

  • Directional Movement Index (DMI)
  • Dragonfly Doji Candlestick
  • Shooting Star
  • Advanced Technical Analysis

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