What is Hanging Man & Hammer ?
The hanging man and the hammer are both candlestick patterns that indicate trend reversal.
The only difference between the two is the nature of the trend in which they appear.
If the pattern appears in a chart with an upward trend indicating a bearish reversal, it is called the hanging man.
If it appears in a downward trend indicating a bullish reversal, it is a hammer.
Apart from this key difference, the patterns and their components are identical.
Both consist of a single candlestick with a real body near the top of the candle, a long lower shadow at least twice the length of the body and little to no upper shadow.
The color of the candlestick in either scenario is of no consequence.
The length of the lower shadow is of primary importance as it indicates the demand for the underlying security pushed the price toward the upper third of the trading range for that period.
Typically, this is considered a bullish signal.
Thus, being a bearish reversal pattern, it is important to establish confirmation of the hanging man before entry.
Ideally, confirmation is established in the form of a subsequent candle with a closing price below the real body of the hanging man.
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