Hanging man candlesticks are found near resistance levels or at the top of uptrends. They are shaped like a hammer with a long shadow and little to no upper wick. They are a bearish reversal pattern. These candles are typically red or black on stock charts. Look for a break below the candle to confirm a reversal to the downside.
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Hanging Man Candlestick Meaning
A hanging man candlestick is typically found at the peak of an uptrend or near resistance levels. These candlesticks look like hammers and have a smaller real body with a longer lower shadow and no upper wick. They are typically red or black on stock charts. Hanging man candlesticks form when the end of an uptrend is occurring.
For example, the hanging candlestick happens when there’s a significant sell-off at the market opening. Then, the buyers return and push the price back up so it ends near its opening.
The hanging man candlestick meaning is a sign that buyers are losing control. It is an early warning to the bulls that the bears are coming. The red flag is there even though the bulls regained control at the end of the day.
Consider the bulls and bears war as a football game when stock trading. When the Bulls score touchdowns, the bullish candlesticks are controlling the chart. When the Bears score touchdowns, the bearish candlesticks dominate.
This is an example of a hanging man pattern. The bullish candlestick has a long shadow and is at a peak level. Once the bearish candlestick falls below the bullish one, traders enter into a short position, using a candle close above the bullish candle as a stop level.
This candlestick is most effective when found at the top of an uptrend. Even though it’s a bullish candlestick with a long lower shadow, this candle typically shows that the price is overextended and needs to reverse or pull back. What signals the bearish reversals is when the price falls below the low of the hanging man candle.
Basics
This pattern confirmation is easier to find on intraday charts than on daily charts. That is why it is popular among day traders. Buyers have not lost control, but the shorts are coming in. With the hanging man candlestick chart pattern, you need confirmation that the reversal is happening. The hanging man candle can result in a fake out.
Traditionally considered a bearish candle, it can also provide continuation. Hence, finding the patterns within the patterns is so important. When used in a continuation, the short sellers are sucked in, which creates a short squeeze, pinching the price rather than dumping it. That is why traders need the confirmation of other candlesticks and technical analysis.
Hammer candlesticks and hanging candles look the same. However, they are different.
The hammer is formed at support, while the hanging man candle is formed at resistance.
Hanging Man Candlesticks Trading Strategy
- Traders take a shot at the break of the low and use a close above the high as a stop.
- Some traders go long when the price exceeds the candlestick’s price.
- Then, use a candlestick close below the low as a stop level.
Hanging Man Candlestick Example
This is an example of a hanging man candlestick formation on a daily chart of $GLD, a gold stock. This pattern formed inside of a larger rising wedge pattern. Preceding the rising wedge was a falling wedge pattern. This is an example of a fake-out. Yes, it formed a hanging man failure, but then the price rose. This is why it’s important to know support and resistance and the bigger overall patterns because patterns do fail.
It’s important to pay attention to the smaller candlesticks comprising two to three candlesticks together. This hanging man candle had coequal highs to the previous bullish candlestick. This pattern is called tweezer tops.
It signals that the bulls could not break the previous candle’s high and continue the trend up. The third bearish candle signaled the completion of an evening star, a bearish pattern after this pattern formed a bullish candle form with coequal bottoms, a tweezer bottom, and a bullish reversal pattern.
Tops Example
Hanging man candles can also look like spinning tops with an upper wick. They can also look like doji’s as well. So, HM candlesticks tell a very similar story to them both. They are indecision candles that happen near resistance levels and signal a potential reversal is about to take place.
$NIO Gap Up Example
The picture above is a daily chart of $NIO. You’ll notice that the hanging man candle had a gap from the previous rising wedge, forming a cup pattern. There wasn’t a handle formation to the cup since the hanging candle gapped up above the top of the cup area.
Interestingly, there was another gap up above the hanging candle, which was filled by a large shooting star, signaling a bearish reversal was about to take place. When the reversal happened, it turned into a large, bearish megaphone pattern.
Final Thoughts
Hanging man candles are a popular bearish reversal pattern at the top of uptrends. They can be found at the top of uptrends and signal that a bearish reversal will occur. A steep decline in price doesn’t always happen.
It often turns into a pull-back form, creating a flag or pennant pattern that breaks out and continues the uptrend. The nice thing about this candle is that it gives short traders a clearly defined stop loss if their bearish trade goes against them. The stop loss would go above the top of the hanging man if the price reversed and went bullish.
Frequently Asked Questions
A hanging man is a bearish candlestick at the top of an uptrend or near resistance levels. It becomes a bearish pattern when price action can't break above prior resistance levels and hold.
A hanging man is a bearish reversal candlestick pattern that takes place at the top of a bullish uptrend. The real body of the candle is smaller with a long shadow.
The hanging man and hammer formation is nearly identical, but one is bullish, and the other is bearish. The hanging man is a bearish reversal pattern that happens at the top of uptrends. Hammers are bullish reversal patterns that happen near the base of downtrends.
The hanging man candlesticks and dragonfly doji look identical, except the real body is larger than the hanging man. Dragonfly doji's have no real body size.
A hanging man candle is typically a bearish reversal pattern near resistance levels. It can be bullish, but it's not common.
