Hanging Man Candlestick Definition, Anatomy, & Interpretation

The Relative Strength Index (RSI) divergence can be a powerful tool in conjunction with the Hanging Man. If the RSI shows weakening momentum while the Hanging Man appears, it can confirm the reversal signal. For those looking to enter the market, a confirmed Hanging Man pattern may suggest an optimal entry point for a short position. Similarly, it can indicate an ideal exit point for traders looking to lock in profits from existing long positions. Like most candlestick formations, the hanging man is not a guarantee that a downturn will occur because no single indicator can precisely predict what will happen next in the markets.

The body of the bar is much smaller than the shadow and can be bullish or bearish. The upper shadow is small or non-existent, indicating the highest and open/close prices were almost equal, while the lower shadow is long, meaning that bears tried to pull the price down. There are several technical analysis indicators and candlestick patterns that are similar to the hanging man in terms of signaling potential market reversals. These patterns tend to be watched by traders for signs of changes in market direction. The hanging man candlestick and the shooting star are both significant candlestick patterns that traders analyze to predict potential market movements. An example of a hanging man candlestick appears at the end of an uptrend and may signify a reversal or a significant downturn in the stock’s price.

What Is the Hanging Man Candlestick Pattern

Candlesticks provide a highly vivid interpretation of price patterns. By looking at a particular candlestick pattern, the trader can get an immediate visual clue as to who controls the market. Candlestick patterns are essential in determining the direction of a financial asset. In the past few weeks, we have looked at several hammer and hanging man candlestick patterns like the hammer and the morning star. It is more reliable when confirmed by subsequent bearish price action, increased trading volume, and alignment with other technical indicators. Pivot points can serve as critical markers for trading the Hanging Man pattern.

In contrast to the hammer, a hanging man forms within a short-term uptrend. The hanging man shows selling pressure with the intraday low, but buyers recovered by the close and pushed prices back to the open. Confirmation with further downside is required because intraday selling pressure did not stick. DR Horton (DHI) formed a hanging man in early May and confirmed it with a move below the hanging man low. Also notice that this decline filled the prior gap to make it an exhaustion gap.

A good example of this pattern is shown on the daily chart of the EUR/USD pair. We have explained how they work and how they can help you identify trading opportunities. As indicated by the chart of the Eurostoxx 50 index (Europe 50 on FXOpen), its value climbed above the psychological level of 5000 points in early 2025.

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Traders should use this pattern in conjunction with other technical analysis tools and fundamental analysis to validate their trading strategies. The Hanging Man is a harbinger of potential reversal in financial markets, offering traders a visual cue to exercise caution. Its occurrence after a sustained uptrend is a critical signal that the buying momentum may be waning, suggesting that the market could be at a turning point.

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The Hammer And Hanging Man Candlestick Pattern

A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing. In the first strategy example, we used a declining ADX reading to know when to act on a hanging man signal. The stop loss will be placed two ATR(Average True Range)-lengths from the highest high of the trend, and the profit target will be placed 3 ATR-lengths away from the low of the hanging man. Then, to exit the trade, we’ll use a profit target and a stop loss. A higher winning percentage often means bigger losses for those losing trades, and vice versa.

1. The Evening Star is a bearish reversal pattern that occurs at the top of an uptrend.
2. The Hanging Man can be used as part of a broader trading strategy, often in conjunction with other technical indicators like moving averages or Relative Strength Index (RSI) for confirmation.
3. If so, the hanging man candlestick pattern may be just what you are looking for.
4. This pattern is considered a stronger bearish sign than when the high and close are the same, forming a green Hanging Man.
5. Below listed are five other types of candlestick patterns besides hanging man.
6. If entering a new short position after the hanging man has been confirmed, a stop loss can be placed above the high of the hanging man candle.
7. The above chart shows the Hammer and Hanging Man candlestick patterns.

Just be aware that the strategies presented are not meant to be traded live. Instead, they are some examples of how we would go about when building a trading strategy ourselves. If you’ve read our article on how to build a strategy (a recommended read!) then these examples here would fall into the first step of the process. One common approach to the hanging man pattern is to wait for a confirmation before taking a trade. More specifically, this means waiting for the market to go below the low of the pattern before taking a trade.

Candlestick charts indeed are popular nowadays and have surged to become the preferred charting method of many traders. When candlesticks are combined together, they form candlestick pattern of which there are many variations, all telling us a unique story about what the market has been up to. One such candlestick pattern is called “hanging man”, and that’s the topic for this article.

1. The pattern’s appearance during an uptrend serves as a cautionary signal that the trend may be about to reverse, shifting from bullish to bearish momentum.
2. And then, you could protect the trade using a stop loss hat is placed slightly above the upper part of the hanging man pattern.
3. The hanging man is just one of the candlestick patterns traders observe to help them trade.
4. Confirmation with further downside is required because intraday selling pressure did not stick.
5. When trading based on the bearish signal of a hanging man, traders may follow certain trading rules.

False signals can occur, so it’s essential to use stop-loss orders and risk management strategies to protect against potential losses. In the context of the Hanging Man, a preceding uptrend and an increase in volume during the formation of the pattern can strengthen the bearish reversal signal. Higher volume reflects increased trading activity, reinforcing the validity of the pattern.