What is a Hanging Man Candlestick?
Hanging Man candlestick is a type of candlestick where the open high and close are roughly the same price; it is also has a long tail associated. It should occur in the uptrend and the length of the tail should be at least twice of the size of the body.
Underlying Psychology of Hanging Man
The first requirement is that existing trend should be uptrend, during the previous sessions buyer were buying and the underlying security price kept on increasing. In the current session finally seller has entered the stock and expectation is that since buyers are getting weak,selling will happen in coming sessions.
If you revisit the concept shared for Dragonfly Doji, Hanging man looks quite similar to it on standalone candle basis. However if you look at it after considering the prior uptrend, all makes sense.
Example of How to Use a Hanging man Candlestick
How to Trade Hanging man
Decision: In case of Hanging man,traders should start looking for selling opportunities, sell price should be around the close price of filled candle after hanging man has formed.
Stop loss: What if the market reverse its direction after printing the hanging man ? The high of the candle will act as stop-loss in case that happen.
Main Points to Consider
- Only trade Hanging man forming with previous uptrend.
- Wait for confirmation candle(filled only) after hanging man has been formed.
- Hanging man with long tail works better.
Beginner in candlestick? checkout below
- What is a Hammer Candlestick pattern and how to trade it?
- What is a Gravestone Doji candlestick pattern and how to trade it?
What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower.William O’Neil