Traders can benefit from speculating currency prices in any direction. But, how do traders know when to buy and when to sell? One of the most common methods for predicting future prices is technical analysis. Technical analysis uses various indicators chart patterns and candlestick patterns. In this article, we will focus on a candlestick pattern. In particular, Hanging Man. What is Hanging Man in trading? Let’s find out together.
Hanging Man definition
Hanging Man is a bearish candlestick pattern that appears at the end of an uptrend. However, this is not a strong reversal signal. But it does indicate that bears are becoming active and they can reverse prices at any minute. The candle consists of a small real body, a small upper shadow, and a long lower shadow. For a candlestick to be considered a Hanging Man, its lower shadow needs to be at least twice larger than the real body. In addition, an uptrend is not necessary, but there should be a significant rise in prices before it appears. You can see the Hanging Man pattern on a daily candlestick.
Why is Hanging Man important for traders?
- Hanging Man can be used as a signal to open short positions.
- It is relatively easy to spot, so traders don’t need any expertise to spot and use this chart pattern.
- Traders who have long positions open can use Hanging Man as a signal to exit the market.
- Understanding Hanging Man in trading can help traders learn about market psychology and how bulls and bears move prices.
Thorough Hanging Man explanation
Hanging man candlestick pattern is a single candle pattern and it is formed in an uptrend. The pattern displays a strong reaction from bears. And it signals that a price reversal might happen. Although, there is no clear point from which we should be expecting the reversal, but we should be ready for it.
In order to identify Hanging Man, traders should look for a candlestick that has a small real body, a very small or non-existent upper shadow, and a lower shadow that is at least twice the size of the real body.
Hanging Man can be used in combination with other indicators and patterns in order to get a better reading of the market.
Example of Hanging Man in Forex
Now for better visualization, let’s look at the Hanging Man example in Forex. In this example, we are looking at the EUR/USD currency pair which has been rising in value for around a month. Later the Hanging Man pattern appeared on the chart. The pattern shows that sellers have awakened, even knowing the price closed near the open within the candle. The pattern predicted that bears would come and it actually has happened. However, as you can see, the pattern doesn’t give traders obvious entry points. And therefore, it’s best to use the pattern in combination with other indicators.
FAQs on Hanging Man in trading
What is Hanging Man in Forex?
Hanging Man meaning in Forex is a candlestick chart pattern that indicates an upcoming bearish market. It consists of a small real body, a small upper shadow, and a big lower shadow.
Can Hanging Man be bullish?
Hanging Man is a bearish candlestick pattern. It appears in an uptrend and displays active bears. There’s no exact point at which we should be expecting a price reversal, but when the pattern appears, bear market moves are close by.