Hanging Man

The Hanging Man is a bearish reversal pattern that occurs after an uptrend. It is significant over all time units.

The Hanging Man and the Hammer are similar in many ways but they imply opposite consequences.

This reminds us that it is important to study the context in which a pattern occurs, i.e. a downtrend before the Hammer and an uptrend before the Hanging Man.

The Hanging Man’s characteristics are as follows:

• The Hanging Man must appear after a downtrend.

• It should have almost no upper shadow.

• The body must be short and situated on the upper part of the candlestick. It can be green or red but should ideally be red.

• The lower shadow should be long and ideally twice as long as the body.

• Prices should reach new highs compared to the previous candlestick.

On this example, all these requirements are met and the reversal does occur.

A Hanging Man appears after an uptrend, when prices reach new highs before dropping and rise up again and finally closing at almost the same level as they opened. This shows that the bearish forces are emerging although their number is not significant enough yet. The body should preferably be red since it means that the buyers did not manage to make prices rise up to their opening level. Given the way it is formed, a Hanging Man is less significant than a Hammer and it is all the more important to wait for it to be validated.

The longer the lower shadow is in comparison to the body, the shorter the upper shadow (a shaven head remains the ideal case, just like this example) and the more significant the hammer is. Strong volumes can also confirm the pattern.

Even more than it was for a Hammer, it is wiser to wait for the confirmation of the Hanging Man by the next candlestick that should open lower if one wishes to sell on D+1 (D being the day of the Hanging Man) or be red if one prefers to wait for the next close and sell at the opening on D+2.

The invalidation threshold can be placed either above the highest point of the Hanging Man, or according to the Thirds Rule, depending on the stakeholder’s investments intentions.

Moreover, it is interesting to observe both the reversal patterns and the support and resistance lines. A Hanging Man can appear around a resistance as it happens in this example when prices drop at 5000 pts.