What is a hanging man candlestick pattern?
The hanging man candlestick pattern is a bearish signal that indicates a stock will likely end an upward streak. It is a very powerful reversal pattern.
This consists of only 1 candlestick. What happens is the given stock has been bullish. However 1 day it opens up and starts to fall. The bears take control of the stock and drive it down.
The bulls come in later in the day and drive the price back up. The stock can either finish the day bullish or bearish it doesn’t matter. What it does show is that the bulls are starting to lose strength. Because the bears were able to gain ground it could also mean that the shorters are gaining strength.
The candlestick has a head and a long tail. That gives it the impression of being a man who has just been hung. Another reason for that name is it can mark the death of a rally. It is the second candlestick on the chart.
Tip
The hanging man needs to occur during a rally. If it does not occur after a rally it may actually be a hammer which is a bullish signal.
Why does it work? During the hanging man day the markets open up high but are being pushed down. In the middle of the day the bulls manage to bring the stock back up to around where it originally was. However they are not able to make any big bullish advances.
This shows that the bears are starting to put up a fight in the stock and they may just turn the trend around.
Other Candlestick Patterns
There are a variety of patterns out there which traders can use to tell the short term trends of the market. Here are a few more patterns.
Hamrai - A 1 day reversal pattern
Doji - A common 1 day candlestick which shows indecision in the market
Bullish Tri Star - A 3 day bullish reversal pattern
Top of hanging man pattern
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