Dear readers, you should now understand the importance of
candlestick analysis in technical analysis. Japanese candlesticks, one of the
methods that help us predict price movements, can provide several advantages in
our trading activities in financial markets. In particular, Japanese candlesticks have been developed over time and have had a game-changing impact
on trading. Therefore, by understanding the reasons behind candlesticks, we can gain an advantage in our trading activities. The topic of
this article will be the "Hanging Man" candlestick pattern, which is
one of the candlestick patterns.
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| Hanging Man candlestick |
- Topic: Hanging Man
- Type: bearish
- Trend direction: reversal
- Opposite pattern: Inverted Hammer
What is the Hanging Man Candlestick Pattern and Why is it Called That?
The Hanging Man is a bearish candlestick formation that
appears at the end of an uptrend. Bulls lose their belief that the price will
continue to rise as the uptrend nears its end. Taking advantage of this
situation, bears push the price downward. After some time, bulls attempt one
final push to pull the price back up. This effort results in a long lower
shadow on the candlestick. The body of the candlestick, compared to this
shadow, remains small. The body of the candle is usually red, occasionally
green, but the color is not an outstanding feature of the pattern. The shadow
is at least twice the length of the body. The name "Hanging Man"
comes from the visual appearance of the pattern. The long shadow in the pattern
extends downward, resembling a "hanging man" figure. Therefore, the
pattern is named "Hanging Man".
How to Trade with the Hanging Man Candlestick Pattern?
The Hanging Man candlestick pattern appears at the final
stage of an uptrend and indicates a high probability of a trend reversal. When
the pattern forms, sellers start to push prices downward. This situation may
signal the beginning of a new bearish trend or a short corrective move within a
strong bullish trend. In either case, the Hanging Man pattern provides traders
with a notable sell signal.
Sell (Short): A sell order can be placed below the lower end
of the shadow or when a confirmation candlestick forms (such as the next
candlestick closing downward).
Stop Loss: The stop loss level is positioned slightly above
the level where the pattern formed (upper end of the body) or slightly above
the resistance level.
Take Profit: The target can be set to the distance to the
support level. Additionally, Fibonacci retracement levels and risk/reward ratios can be used.
Please refer to a trading example based on the "Hanging
Man" pattern on the Bitcoin/Tether chart.
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| Hanging Man Pattern on the BTC/USDT chart |
It's Essential to Remember: Every trade in the Forex market carries risk, and risk management is crucial. The Hanging Man pattern is not a reliable trading signal on its own. To increase the pattern's reliability, it should be evaluated in conjunction with other technical indicators. Risk management and emotional control are necessary for a successful trading strategy.