What are Hanging Man Candlesticks?
It is a reversal candlestick pattern with long lower shadow and no upper wick. It is a simple candlestick pattern made of a single candleline. They are bearish in nature and appear at the end of an upper trend.
It has its name because of its resemblance to the hanging dead man. It may also mean that if you do not respect this signal and still hold on to the position, then you are a dead man.
A hanging man typically appear at the end of an up trend. They have a small real body at the upper end of the candle. The body may be black or white. They have a long lower wick which is double the height of the real body. The upper wick may be absent or very short.
It is formed because of the bears not allowing the bulls to push the price high. The stock is in an up trend and at a crucial resistance level. After opening high the sellers push the prices down by over supplying the stock. It is accompanied by profit booking.
But later in that time period the buyers increase in number and the demand for the stock increases. The price moves up and closes near the opening, either just below or just above the opening price.
This results in a small body and a long lower shadow which looks like a hanging man.
The market opens and continue their up trend. At the upper end of the trend the buying ceases. The trend reverses and the supply increases pulling the price lower. But the ongoing trend pushes the price again to close near the opening or little above.
The presence of resistance, lack of bullish white candle with a close above the resistance, presence of small body - all reflect the barricade of bears. There is bears short selling as well as bulls profit booking.
This should hint us the cessation of the up trend. Downtrend is likely to start. While every one is euphoric about the bull phase, you should feel cautious about the hidden bears not allowing the price to move decicively beyond the resistance area.
Next day's price movement confirms whether the trend is reversed or continuing. You should cover your long position and may plan to short the stock.
Hangingman candle with a black body is more bearish than the one with a white body.
Candlesticks with similar features, when they appear at the end of a down trend are called as Hammer candlesticks which are bullish in nature. So the name changes depending on, whether they appear at the end of an up trend or a down trend.
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There are many more simple candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.