Hanging Man Candlestick

Hanging Man Candlestick

Definition

The hanging man is a single-bar bearish reversal candlestick that appears at the end of an uptrend. It has a small real body near the top of the trading range, a long lower shadow (usually at least twice the body length), and little to no upper shadow. The pattern signals increasing selling pressure during the session, but it must be followed by a lower close (confirmation) to be considered a valid reversal signal.

How to recognize it

• Small real body near the session’s high or open.
• Long lower shadow (typically ≥ 2× the body).
• Little or no upper shadow.
• Forms after a noticeable prior advance (can be a short-term or larger uptrend).

What the pattern implies

The long lower shadow shows sellers were able to push price down during the period, but buyers recovered some ground by the close. This suggests bulls may be losing control. Confirmation — a subsequent candle that closes below the hanging man’s close — increases the odds of a bearish reversal. Without confirmation, the pattern is only a warning.

How traders commonly use it

• Wait for a confirmation candle that closes lower before acting.
• Exit long positions or consider entering short positions after confirmation.
• Place a stop loss above the high of the hanging man.
• Use position sizing and risk management; candlestick signals do not provide profit targets.

Practical trading tips

• Look for volume confirmation — higher selling volume on the hanging man or confirmation candle strengthens the signal.
• Combine with support/resistance, trend analysis, or moving averages to validate context.
• Consider a risk-reward framework (e.g., set profit targets with technical levels or trailing stops).
• Avoid entering on the hanging man alone; confirmation reduces false signals but may also worsen entry price.

Example (illustrative)

On AMGN’s daily chart after a roughly 33% rally, a hanging man formed during consolidation. A trader might:
* Enter short at the next session’s open (example entry ~$285.55),
* Place stop loss above the hanging man high (~$296.67),
* Set a profit target consistent with a 2:1 risk-reward (example target ~$263.07).
In that illustrated case the trade reached its target within about 21 trading days. This is an example only — always backtest and adapt to your plan.

Hanging Man vs. Hammer

The hanging man and hammer have identical shapes; the difference is context:
* Hanging Man — appears after an uptrend; bearish reversal signal.
* Hammer — appears after a downtrend; bullish reversal signal.
Both require confirmation by the next candle (a lower close for hanging man; a higher close for hammer).

Limitations

• Confirmation can produce a late/less favorable entry.
• Patterns do not specify profit targets; traders must define exits.
• False signals occur; price may not continue lower even after confirmation.
• Best used with other analysis tools and strict risk controls.

Complementary indicators

To improve reliability, combine the hanging man with:
* Trend filters (moving averages)
* Momentum indicators (RSI, Stochastic)
* Volume analysis
* Support and resistance and chart structure
* Fibonacci retracements

Timeframes

Hanging men appear on any timeframe (intraday to monthly). Effectiveness depends on your trading horizon and strategy; higher-timeframe signals generally carry more weight for longer-term traders.

Bottom line

The hanging man is a useful bearish warning at the end of an advance, but it is not a standalone trade signal. Require confirmation, combine with other technical analysis, use clear stops and position sizing, and employ defined exit rules to manage risk and improve the pattern’s practical usefulness.