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Hanging Man Candlestick Pattern Analysis and Signals

This article covers what a Hanging Man candlestick pattern is, why it is called that, and how to trade it.


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.

This image shows an example of the Hanging Man candlestick pattern.
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.

Example of trading based on the Hanging Man pattern in Bitcoin/Tether chart
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.

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