The hanging man candlestick is a good indicator if you are looking for signs that an asset’s price is about to fall. In this guide, you’ll find out what the hanging man candlestick is, how to recognise it, and what it means for your trading strategy.
What is a hanging man in trading?
A hanging man candlestick has a small real body, a long lower shadow, and a little or no upper shadow, as depicted in the image below. It happens during an uptrend and indicates that prices may start decreasing, so it often indicates a bearish trend.
The hanging man is a pattern in technical analysis that shows up at the end of a rising market, known as an uptrend. It serves as a warning to traders that the market might change direction.
In simpler terms, the pattern can indicate that the market is nearing a point where it may stop rising and start falling. However, it’s important to wait for a second candle that closes below the main part of the hanging man candle to confirm the pattern.
How does a hanging man work?
Here are the key features of a hanging man:
- It shows up at the end of a market that is moving upward, also known as an uptrend.
- The candle forming this pattern has a small body. The color of the candle should be red (indicating selling pressure).
- The candle has a long lower shadow, or wick, which should be at least twice the size of the body.
- The upper shadow, or wick, of the candle is either missing or very small.
This is what a hanging man candlestick should look like:
To improve reliability, here are some other noteworthy aspects:
- The long lower shadow should be at least twice the size of the body, as already mentioned. Although sometimes the pattern may work without meeting this condition, it’s safer to stick with this rule.
- The next candle that appears should open below the body of the hanging man candle.
These two rules enhance the reliability of the pattern:
Understanding the psychology behind the hanging man
The hanging man warns traders that the market might stop rising and start falling.
The long lower wick shows that sellers were able to push the market down during the day. Even though buyers regained control and pushed the price back up, the pattern suggests that selling pressure could increase soon.
How does a hanging man differ from a hammer candle?
The hammer candle pattern appears at the end of a downward-moving market, known as a bearish trend. It warns that the market might start moving upward. So, it signals a shift from a bearish to a bullish trend. While they look very similar, the hanging man indicates the beginning of a bearish trend, while the hammer is a bullish pattern.
By understanding these patterns and their differences, traders can make more informed decisions.
How to use the hanging man in trading?
Here are two examples of how to use the hanging man candlestick in trading:
When you notice a hanging man candlestick, wait for the next candle to open below the body of the hanging man candle. Then wait for an additional 2-3 candles to confirm the market is falling. At this point, you could sell your position or start a short sell. If you go short, set a stop-loss order just above the hanging man candle.
Active trading approach
Once the hanging man candle is complete, look at the next candle. If it opens below the body of the hanging man, consider selling. For short positions, place the stop-loss above the highest point of the hanging man pattern, giving it a bit of extra room.
In this chart, we can see the market rising and then a red hanging man candle appears. The next candle opens below the body of the hanging man, confirming a sell signal. Following this, the market starts to fall.
Example of hanging man and change of trend
Here is another example:
You can notice that the market was going up, but then a hanging man candlestick appeared. The next candle opened below the body. We can also notice that the market turned bearish after the hanging man.
Pros and cons of using the hanging man in trading
Among its main advantages, we have the following:
✅ Gives an early warning of a possible market downturn, especially after a long uptrend.
✅ Easy to spot on a chart.
✅ Helps traders decide when to sell and where to set stop-loss orders.
✅ Works across different types of markets and assets, like stocks, currencies, and commodities.
❌ Doesn’t guarantee a market turn by itself. You need to wait for additional confirmation.
❌ Not always reliable and can give false signals. Use with other indicators for better results.
❌ Best used as a supplementary tool, not as the main basis for making decisions.
Read more about technical analysis
- Trading guide
- Trend indicators
- Support and resistance
- Money management strategies
- How much a trader earns
The hanging man pattern is a tool in technical analysis that hints at a possible change from an upward to a downward trend. However, it’s not highly reliable on its own, so it’s essential to wait for further confirmation and use additional indicators for more accurate decision-making.
Does trading volume impact the reliability of the hanging man pattern?
Volume can provide additional clues about the strength of the hanging man pattern. If the hanging man candle occurs on higher-than-average trading volume, it may be a stronger signal that the market could reverse direction. However, volume is just one factor and should be used in combination with other indicators for the most reliable analysis.
Can the hanging man pattern be used in shorter time frames, like 5-minute or 15-minute charts?
Yes, the hanging man pattern can appear in any time frame, including short ones like 5-minute or 15-minute charts. However, the reliability of the pattern generally increases with longer time frames. In short time frames, the pattern might produce more false signals, so extra caution is advised.
How does the hanging man pattern differ from the “shooting star” pattern?
Both the hanging man and shooting star patterns indicate potential market reversals, but they appear in different contexts and have different shapes. The shooting star pattern occurs after an uptrend, like the hanging man, but it has a small body at the lower end and a long upper wick. It suggests that buyers pushed the price up during the period but couldn’t sustain it, so sellers took over. It serves as a bearish signal, just like the hanging man, but the shapes of the candles are different.