The hanging man candlestick is a chart pattern used in technical analysis. The hanging man candlestick is used to identify potential downturns in uptrends, as it signals bull exhaustion in fighting a growing bearish sentiment.
Hanging Man Candlestick Example
The hanging man candlestick gets its name from its appearance as a small body positioned above a long tail.
The tail occurs as a result of sellers pushing the price far below the open, while the small body is the result of the bulls managing to bring the closing price back near to the open. Obviously the high price for the day does not exceed its open.
A security that opens at $10 per share, trades down to $8 per share as the daily low, and then closes at $9.50 per share would produce a hanging man candlestick.
Hanging Man Candlestick in Technical Analysis
While the hanging man candlestick is a bearish signal, it is generally interpreted as an indicator that a more pronounced bearish signal is likely to come.
Therefore, most technical day traders do not automatically short a security after a hanging man candlestick, but rather use it as a sign that they should be on the lookout for more definitive bearish indicators.
The hanging man candlestick signals the start of significant bearish pressure. The bulls are able to rally by the end of the trading session to bring the price back up to near the open, but the long tail indicates that the start of significant selling pressure has begun and the uptrend is likely nearing its peak.
Hanging Man Candlestick and Trading
Day traders who use technical analysis generally employ the hanging man candlestick as a useful tool for quickly browsing through price charts to identify potential trades that require further research and analysis.
While few day traders will scan through charts looking specifically for hanging man candlesticks, it is among a dozen or so of the most popular chart patterns that technical analysis day traders become accustomed to looking for when seeking out potential trades.
The identification of a hanging man candlestick should be followed by further analysis looking for more definitive bearish technical indicators.
Day traders who are comfortable with identifying the hanging man candlestick will find a number of complementary chart patterns that will help them to confirm and time an upcoming reversal in an existing uptrend.
The hanging man candlestick chart pattern is part of a small yet potent group of chart patterns that day traders can use to sift through large amounts of information to find potential trades.
The hanging man candlestick and other similar chart patterns tend to leap out from the page during even cursory glances, particularly as day traders become more experienced at spotting them.
The identification of a hanging man candlestick should be followed by further analysis to identify the actual impending downturn, as the hanging man candlestick is only an indicator for a potential downturn, and offers little insight into actual timing.