Chapter 5 Hanging Man and Hammer
The hanging man and the hammer just look like the same. These two candlesticks are differentiated by the prior move or short-term trend. Both candlesticks have long lower shadows and small bodies. A small body indicates little change from open to close. Hammer and hanging man candlestick indicate that prices declined but recovered and closed near the opening level.
Hanging Man
The Hanging Man formation is created when the open, high, and close are roughly the same price. There is a long lower shadow, which should be at least twice the length of the real body.This pattern occurs mainly at the top of uptrend and can act as a warning of a potential reversal downward.
Upward trend: The hanging man can only be identified as such once it has formed at the top of an uptrend.
Opening level: The hanging man candle can either be a white candle (bullish), or an orange candle (bearish) although, the bearish candle provides a better indication of a weakening market.
Upper shadow: A small upper shadow indicates that there was an attempt to maintain the current uptrend before the significant drop in the price.
Long lower shadow: This is probably one of the most insightful observations on the candle, depicting a significant sell off before the bulls tried to regains some ground forcing the closing price to end up somewhat closer to opening levels but still down for the period.
Closing level: In this case the closing level was below the opening level and therefore, confirms that this is a bearish hanging man candle.
The hanging man candlestick can be used to identify a short trade (bearish view of the market) as the long shadow indicates massive selling. The true test of the legitimacy of the hanging man candlestick is often revealed in subsequent activity on the chart. If the following candle moves further
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