Hanging Man Candlestick Pattern – Strengths and Trading Ideas
Hanging Man Candlestick Pattern: Investors use technical analysis to predict stock price movements based on past trends. Candlestick patterns are a popular way to determine past reactions and predict future stock movements by examining the shape and color of individual candles. This approach is essential to making informed investment decisions in the stock market.
In this article we will understand one of the candlestick patterns called the Hanging Man candlestick pattern.
Hanging Man Candlestick Pattern – Definition
The Hanging Man is one of the most frequently occurring single candlestick patterns. The formation of this pattern indicates a bearish reversal. The Hanging Man candlestick pattern consists of a small body, a long lower wick, and little or no upper wick.
Here the color of the candle can be green or red as it has no effect on indicating a trend reversal. Additionally, the length of the lower core must be at least twice the actual body length.
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Hanging is a bearish reversal pattern, so a trader can sell the security if he or she purchased it. If this pattern appears above an uptrend, traders may also find a selling opportunity.
Hanged Man Candlestick Pattern – Meaning
Since this is a bearish reversal indicator pattern, the prior trend before this pattern was formed must have been an uptrend.
The body of the candle is small because the price closes near the open. A green candle is formed when the price closes above the opening, and a red candle is formed when the price closes below the opening.
The color of the candlestick does not affect the indicator as the bearish reversal indicator is derived from the color of the candlestick. long bottom wick It has a small body and little or no upper wick.
Hanged Man Candlestick Pattern – Psychology
When the price of a security is trending upward, there is more buying pressure in the market. During the formation of a hanging man candlestick, the price falls after the security opens due to heavy selling. However, buyers pick the price near the open price and the candle closes near the open price.
The formation of long wicks indicates that more sellers are entering the market. Therefore, security prices typically see downward momentum after the Hanging Man candlestick pattern is formed as more sellers can potentially enter the market.
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Hanging Man Candlestick Pattern – Strengths
There are few situations where the formation of a hanging man candlestick pattern provides a stronger bearish reversal signal.
- What it looks like near the support area: When it forms near a resistance level, it provides a strong signal that the price of the security is potentially headed lower. This can be caused by multiple sell orders existing in that zone, and once this pattern is formed, it can attract more sellers to the security.
- Forming near all-time highs: The formation of this pattern when the price is at an all-time high is a strong indication that the price could potentially decline for a short period of time or enter a downtrend entirely. This is because market participants usually get anxious when the price reaches an all-time high and think of exiting the trade by booking profits that have already been made.
- The Hanged Man with RSI combined: If a hanging man pattern appears during an uptrend and the RSI indicator suggests that the security is in overbought territory (above 70), the likelihood of a reversal becomes even higher.
Hanging Man Candlestick Pattern – Trading Ideas
Traders must ensure that the previous trend before this pattern was formed was an uptrend. If this pattern forms in an uptrend, here are some guidelines for trading:
- entry: If the price of a security falls below the low price of the Hanging Man candlestick pattern, traders can make a sell entry.
- Target: Traders can exit a trade when the security’s price reaches near an immediate support zone. Once this level is reached, you can also book a partial profit on the trade and hold the remaining position until the next support level.
- Stop Loss: Traders can set a stop loss near the high price of the hanging man candlestick pattern.
Hanging Man Candlestick Pattern Combined with RSI Indicator
Market participants can combine candlestick patterns and indicators to get a more powerful indication of future price movements. Combining the Hanging Man candlestick pattern with RSI provides an even stronger indication of bearish momentum.
If such a pattern is forming in the market and the RSI is also in overbought territory, this is a stronger signal indicating a potential downward movement in the security. Therefore, market participants can combine the two to obtain a more powerful indicator.
Difference Between Hammer and Hanging Man Candlestick Patterns
Both the Hanging Man Candlestick and the Hammer Candlestick have similar shapes. Both have a long lower wick and a small physical body. The difference between the two is that when this type of candlestick appears in an uptrend it is called a Hanging Man candlestick pattern and when it appears in a downtrend it is called a Hammer candlestick pattern.
Hanging Man Candlestick Pattern – Example
In the RELIANCE INDS 15-minute chart above, you can see a hanging man candle pattern forming at the top of an uptrend. As explained in this article, security prices have been trending downward since the Hanging Man pattern was formed.
The trader could take the sale item for Rs. 2985.05 and the stop loss was Rs. 2998.35
Hanging Man Candlestick Pattern – Highlights
- For indicators to have a higher probability of success, the previous trend must be an upward trend.
- The candlesticks that form this pattern consist of a long bottom wick, a small actual body, and a top wick.
- The color of the candle is not important, it can be green or red.
- This pattern indicates a bearish reversal.
Read more related articles: Rising Window Candlestick Pattern, dark cloud cover candlestick pattern
conclusion
In this article, we have examined one of the most commonly occurring candlestick patterns in the market. financial market, known as the “Hanging Man” candlestick pattern. We have thoroughly investigated the conditions that a candlestick must meet to be classified as a Hanging Man candlestick pattern.
We also explored how traders can analyze these patterns and make informed trading decisions based on them. By understanding the nuances of these candlestick patterns, market participants can gain valuable insight into market behavior and make more informed decisions when trading.
What do you think about this candlestick pattern? Let us know in the comments section below.
Written by Praneeth Kadagi
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