What Is a Hanging Man Candle and How Does It Work?
What Is a Hanging Man Candle?
A hanging man candle's opening, closing, and high price are almost the same and look like a hammer candle. The hanging man candle has a small body candle with no upper shadow and the lower side has a lower shadow of at least twice of the the body candle.
The only difference is that, if the stock is in a downtrend, a hammer candle is formed at a lower level and signal for a bullish reversal, But a hanging man candle forms at the resistance level, when the market is bullish but after forming a hanging man candle, signal will be for bearish reversal for downside trend.
Important features of a Hanging Man Candle
Small real body (the part that represents the opening and closing prices).
Long lower shadow (at least twice the length of the real body candle).
Small body candle and to no upper shadow.
It can be either a red or green candle (though color isn't as important as the shape).
How to Identify a Hanging Man Candle?
Look for an uptrend: The hanging man usually shows up after prices have been climbing for a while.
Find the "man": Look for a candle with a small body at the top and a long lower shadow.
Check the shadows: The lower shadow should be at least twice the length of the body, with little to no upper shadow.
Confirm the next day: A true hanging man pattern is confirmed by a price drop the following day.
How to use the Hanging Man Candle in the trading?
Don't panic sell: Just because you see a hanging man candle doesn't mean you should immediately sell everything. It's a warning sign, not 100% sureshot.
Wait for confirmation: Look for other signs that the trend might be reversing, like a drop in price the next day or other bearish patterns.
Consider your position: If you're in a long position (betting on prices going up), you might want to think about taking some profits or setting a stop-loss.
Look at the bigger picture: Don't forget to consider other factors like overall market conditions bullish or bearish, any events, company news, or economic data.
How to trade with Shooting Star candlestick Patterns?
What should be the entry point?
Wait for the hanging man pattern to fully formation.
Confirm the pattern with the next candle price action pattern.
Look for increased trading volume during pattern formation.
You can add a Moving average indicator tool for more confirmation.
What should be a stop-loss order?
Place stop-loss order above the high of the hanging man candle.
Consider market volatility when placing a stop-loss buffer range.
Use proper position sizing to manage risk 1-2% of the total capital.
Common Mistakes to Avoid
Overreacting: Don't make big decisions based on this hanging man pattern alone.
Ignoring context: A hanging man means different things in different market conditions.
Forgetting confirmation: Always wait for the next day's price action to confirm the pattern.
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