“Hanging Man” Candlesticks

The so-called “hanging man” candlestick is actually a hammer at the top of an uptrend. In other words, it is a candle that initially tries to fall, but finds support below and bounces in order to form a relatively small body with a long wick to the downside. This suggests that there of course are buyers underneath that are going to continue to push this market higher. However, what makes the “hanging man” different than the hammer is that it is at the top of an uptrend, and it also needs a supporting candle in order to make its qualified for this designation.

A "hanging man" candlestick.

A “hanging man” candlestick.

The candlestick becomes a “hanging man” only after the next candlestick forms, and more importantly breaks down below the bottom of the original candle. This shows the buyers failing to make the market continue to go higher, and as a result they will have started to lose money. Because of this, it shows that there is a complete failure of the buyers to continue to push the market and therefore they have completely lost momentum.

When you look at the hanging man itself, you can see that it is in fact a powerful signal. After all, anytime people start to lose money they have to reverse their position and therefore exacerbate the move to begin with. When you look at the chart below, you can see that the market sold off almost immediately, as we broke down below the bottom of the hanging man. What you need to recognize that the buyers have lost, and that means that eventually the sellers are going to win. As you can see, we not only sold off, but bounced in order to give sellers yet another chance to get involved.

A hanging man moves the markets...

A hanging man moves the markets…

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