Hanging Man Candlestick Pattern
The hanging man candlestick pattern represents a possible reversal to the downside – a bearish reversal. The hanging man candlestick pattern is composed of a relatively small bearish body, either no, or, a small upper shadow and a significantly longer lower shadow.
Hanging Man Candlestick Pattern Analysis
The hanging man candlestick pattern is significant when it occurs in an established uptrend. It signifies a failed attempt for the rate to move higher, while also closing below the open value for that time period.
The hanging man candlestick pattern becomes increasingly relevant when the following occur:
- It is composed of a small bearish body with no, or a very small upper shadow and a lower shadow of significant length.
- It is preceded by a strong up trend.
- Confirmation candles are used to confirm the reversal.
- Overbought indicators confirm a change in market direction.
Forex Trading Ideas
The hanging man candlestick pattern may be traded alone, or with a combination of signals and/or indicators. For example:
- Step 1 – Wait for a hanging man candlestick pattern to appear during an established up trend.
- Step 2 - Confirm the trend reversal with at least one confirmation candle.
- Step 3 – Further confirm overbought conditions using the RSI – Relative Strength Index*
- Once conditions 1 – 3 are met place an entry order.
*Additional confirmation ideas – confirm the hanging man candlestick pattern formation when it appears outside of the upper Bollinger Band or when the Stochastic Oscillator signals overbought conditions.
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