Hanging man candlestick

A hanging man is a single candle with three features: a small real body at the upper end of the range, a long lower wick and little or no upper wick. It counts as a hanging man only when it appears after an advance, at or near the high of the move.

The pattern comes from Japanese candlestick charting. Steve Nison explains the name by the shape: a small head with legs dangling below it.

During the period sellers pushed price far below the open. Buyers brought it back by the close, so the candle itself does not look weak. The meaning is in the wick: for the first time in the advance a large amount of selling appeared, and the market was only just able to absorb it.

Everyone who bought near the close of a hanging man is holding a position close to the high. If the next candle opens lower or closes lower, those buyers are at a loss and may sell. That is why the pattern is read only together with the candle that follows.

• Body – small and in the upper part of the candle.
• Lower wick – at least twice the height of the body.
• Upper wick – none or very short.
• Trend – an advance before the candle. The longer and steeper the advance, the more the candle matters.
• Color – either. A red hanging man, with the close below the open, is read as slightly more bearish.
• Location – it gets more weight at resistance or at a previous high.

The two candles look the same. The difference is the trend before them. A hammer forms after a decline and is read as bullish: sellers failed to hold a new low. A hanging man forms after an advance and is read as bearish: sellers showed up in force near the high.

A hammer has a simple logic and is often traded on its own close. A hanging man closes near its high, which is not bearish by itself, so it needs confirmation more than a hammer does. The related bearish candle with the long wick above the body is the shooting star.

A hanging man is a warning for longs first and a short setup second. Many traders use it only to tighten a stop or take part of the profit on a long position. For a short, the rules are these.

• Confirmation – the next candle closes below the body of the hanging man. A close below its low is stronger.
• Entry – on that close, or on a break of the hanging man's low.
• Stop – above the high of the hanging man.
• Target – the nearest support, the start of the last leg up, or a fixed multiple of the risk.
• Filter – an overbought RSI and high volume on the candle are common additions.

On its own it is one of the weaker candlestick signals. In a strong uptrend price often keeps rising after a hanging man, because the candle still closed near its high. The reading improves with a confirming candle, a long advance before it and a known resistance level above it. In Replay mode on Charts you can step through history candle by candle and see what followed hanging men on your market.

• Shorting on the close of the candle itself – without confirmation it is only a candle with a long wick.
• Calling a hanging man inside a range or after a decline – after a decline the same shape is a hammer.
• Accepting a short lower wick – it has to be at least twice the body.
• Placing the stop inside the candle – the pattern fails only above its high.
• Treating it as a trend reversal – it marks a possible top, and often only a pause or a pullback follows.