Japanese Candlestick patterns-Hanging Man

Japanese Candlestick patterns-Hanging Man(Figure 7)

The Hanging Man formation (Figure 7) gets its name from the patterns unique appearance it gives on a stock chart of a man hanging at the peak of an uptrend. The pattern is made up of three candles with the second candle being a hammer that has gaped up above the preceding candle. On the third day, prices start to decline below the wick of the hammer of the previous day completing the formation. When we see this formation we can observe selling coming in on the day that the hammer forms. After an uptrend, selling comes in after prices gap up and push prices lower. The buyers are able to regain control and push prices back up towards the opening price or beyond forming the lower wick and small body of the hammer. Even though the buyers were still around on the second day, the initial selling is seen as a warning the trend may be slowing. The third day’s dark candle is seen as conformation of this warning. There are a few things we can look for that will make this pattern more significant:

•A long wick at the bottom of the hammer candle indicating how much selling pressure was present.
•High volume on the second and third day.
•The pattern forms at a point of technical resistance such as a major moving
average, upper trend line, or horizontal resistance.

Japanese Candlestick patterns-Hanging Man