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Hanging Man Candlestick Pattern (How to Trade and Examples)
Chart Patterns

Hanging Man Candlestick Pattern (How to Trade and Examples)

September 4, 2022 Zafari

Hanging man is a single bearish reversal candlestick pattern. It has a long lower shadow and a small body at the top.

The color of the main body of a hanging man candle can be red or green. 

Here is an image showing a hanging man with a red body, and another with a green body.

Hanging man candlestick pattern

This article illustrates trading techniques of hanging man candlestick patterns and provides you with some examples.

Let us begin!

How to Trade a Hanging Man Pattern?

Since it has a body at the top, it looks like a bullish candle. Due to its bullish look, it needs potent signals to reverse a trend. 

The following are signals to search for on the chart:

  1. It should form after a long uptrend. A short uptrend like a correction is not healthy to trade this pattern, but possible to work. If a hanging man appears after a reversal, it is only a sign of indecision.
  2. Generally, wait for a confirmation after a hanging man, such as a gap-down or a tall red candle. 
  3. Blend a hanging man with other technical tools and signals, such as patterns and indicators.
  4. Check the economic calendar when a hanging man formed and after it. 
  5. Combine your analysis with fundamental analysis because a hanging man needs more confirmation.
  6. Sell when you are convinced. And, put your stop loss a little bit above the hanging man.

A hanging man candlestick pattern is not as powerful as other structures, such as shooting star and engulfing patterns. Thus, always trade it with care.

Examples of Hanging Man Candlestick Patterns

I selected three examples explaining the reasons, which I believe helped the pattern change the trend.

Example #1

On 20 February 2020, the Twitter stock made a green candle hanging man. It formed after a relatively long uptrend. Even though its size was small, due to strong supporting signals, it could drag down the price.

green hanging man candlestick
Twitter chart by TradingView

Here are two potent signals:

  1. As mentioned earlier, traders are recommended to wait after a hanging man to confirm it. Two sessions later the price started after a gap-down, one of the most powerful confirmations. As you see, the price declined way below. 
  2. Before the hanging man, nine candles earlier (on earning day), a tall green candle formed after a gap-up. This candle created a resistance line. Nine sessions later, the hanging man formed almost near the resistance line. However, it could not break it. Not being able to break a resistance line is a powerful reversal signal.

There was not any bad news (I searched) about Twitter. However, the two above signals were potent enough to make the price decline, specifically the gap-down. If you sell in these conditions, put a tight stop loss above the hanging man.  

Example #2

On the first of March 2021, the Twitter stock made a red hanging man candlestick.

It was barely a hanging man because hardly its lower shadow was twice the size of its body.

However, the price dropped due to strong signals confirming it.

red hanging man candlestick pattern
Twitter chart by TradingView

Those strong signals are the followings:

  1. This hanging man appeared after a long uptrend. At the end of the trend, in addition to the hanging man, there is one long red candle and a doji as well. The upper shadow of the red candle and the doji are indicators of bulls’ struggles. They are signs of weakening bulls.
  2. A day later (2nd of March), the price opened after a gap-down and closed far below. It is a potent confirmation for the hanging man. 
  3. The RSI Indicator showed a divergence. When a leading indicator such as RSI converges or diverge, it is the first sign of reversal. 

After the gap-down, it was a good trading opportunity. Remember that the candle which opens after a gap down should not fill the gap, to be considered a gap. In the above case, the entry point is at the end of the second of March. And, the stop loss should be put above the hanging man.

Bottom Line

A hanging man is not a very strong bearish reversal candlestick pattern. You need confirmations and strong confirmations to trade it.

Happy trading!

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About The Author

Zafari

Zafari is a professional trader and has been in the financial market since 2014. He has a bachelor of public economics and an MBA. For some reason, he does not show his face. And he loves you all!

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