In this article, I will talk about the hanging man candlestick pattern.
Not many forex traders, especially new forex traders know about the hanging man candlestick and it has the potential to trick many traders to buy when they should be looking to sell.
How do I know that?
Because I used get tricked by this candlestick myself previously.
Well, back then, I didn’t know much about reversal candlestick patterns, so guess what???
I’d buy when I see a hanging man candlestick on a resistance level because I thought that it was a bullish hammer candlestick pattern and there was going to be a breakout to the upside.
I thought I’d make I’d make profit when the breakout happens.
What happens next used to leave me dumbfounded!
Price reverses and I’m limping away with a losing trade.
I would scratch my head and wonder why…
Why was a supposedly bullish candlestick not behaving like it is supposed to at that resistance level?
I just couldn’t work it out why! It was only until later that I knew about the hanging man candlestick.
Thats when I began to understand the reasons behind why the hanging man candlestick forms in the kind of shape and form that it does.
So What Is A Hanging Man Candlestick Pattern Then?
The hanging man candlestick pattern is a bearish reversal pattern found in an uptrend.
Here’s the interesting thing: the hanging man and the hammer candlesticks both look the same.
As a matter of fact they are the same type of candlestick but what sets hanging man candlestick pattern apart is the fact that it forms in an uptrend and a hammer forms in a downtrend.
A hammer is a bullish candlestick whilst the hanging man is a bearish candlestick signal.
Here’s a chart showing both the hammer and hanging man candlestick:
Not All Hanging Man Candlesticks Are Created Equal
What this means is that, If I see any hanging man candlestick on a chart I will completely ignore it if it forms in levels that hold no significance.
What I just underlined above is a very important point to remember. Don’t forget that!
Levels that hold significance are resistance levels, falling trend lines touches and Fibonacci retracement levels. If a hanging man forms in any of these levels, you should sit up and take notice.
Hanging man candlestick can form in any time frames and if you are using multiple timeframe trading, it pays to really know this bearish reversal candlestick as well.
How To Trade The Hanging Man Pattern
Based on your trading strategy, you can incorporate the hanging man candlestick pattern as a sell signal.
When it forms, you sell.
What I do is that if a hanging forms in a major resistance level or price has gone up and touched a falling trendline based on the forex trendline trading strategy (for example) and a hanging man candle forms, I would wait to trade the breakout of the low of the hanging man candlestick using a sell stop pending order.
What I do is place a pending sell stop order at least 2 pips under the low of the hanging man candlestick and then place the stop loss 2 pips +spread above the high of the hanging man candlestick.
For take profit target, aim for 1:3 risk to reward of if there’s a previous swing low, use that as your take profit target.
SUMMARY
- hanging man candlestick is bearish reversal candlestick.
- you look for it when price reaches levels of resistance on your charts and the breakout of it lows is what you should be trading based on your trading system.
- hanging man candlestick can form in all timeframes but not all hanging man candlesticks are important. The important ones are the ones that form on obvious resistance levels. Those are the ones you should be taking notice of to trade.
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