What is a hanging man candlestick pattern?

Navigating the crypto market can be tricky at times. Due to its volatile nature, prices can change in an instant. Therefore, market participants must constantly try and predict what will happen next. They can achieve this by using trading signals and technical indicators provided by chart patterns. For example, the hanging man candle pattern is a trading signal market participants use to predict upcoming bearish reversals.

This guide will explain what the hanging man candle is, what it looks like, and how to benefit from them.

What is the hanging man candle?

In technical analysis, the hanging man candle is a bearish candlestick that suggests a trend reversal is on the horizon. They tend to appear at the top of an upward move in the market, as the candlestick formation suggests the bulls have run out of momentum. As the hanging man candle is a type of candlestick, they only appear on candlestick charts. This type of chart has become increasingly popular, as it can reveal a lot of information about the market. This is why candle patterns are a part of many people's trading strategies.

What does the hanging man candle look like?

The hanging man is essentially a bearish version of the hammer candlestick. It forms when the opening price is above the closing price. The candle has a relatively small body with a long wick towards the downside, indicating that the market is seeing strong selling pressure.

The candle may also have an upper wick, although this is a lot smaller than the lower wick, indicating little buying pressure.

How to interpret the hanging man candlestick pattern?

Market participants use the hanging man candlestick to gain insight into future price movements. The bearish wick indicates intense bearish activity. However, as mentioned above, the closing price must be lower than the opening price. This will be a bullish hammer if the closing price exceeds the opening price.

How to trade with the hanging man candle pattern?

Suppose you spot the hanging man candle while performing market analysis. In that case, market participants usually take this as a sign to sell, as this is a bearish candlestick formation that marks the start of a trend reversal. However, one important thing to remember is to not rely on the hanging man candle alone. No pattern on its own should be used whilst conducting technical analysis, as false signals are often possible. It could turn out that the buying pressure is still high, but the market experienced a sudden inflow of sales. That doesn't always mean that the buyers have lost control. For this reason, you should always use the hanging man candlestick pattern with other indicators to avoid reacting to false signals.

Pros and cons of the hanging man candle pattern

As we have seen, the hanging man candle pattern can be particularly beneficial as a warning against sudden price changes. However, like everything else in the crypto industry, it has positives and negatives. Here is a list of its pros and cons to help you understand its benefits and flaws.

Pros:

• It signifies a trend reversal from bullish to bearish, alerting the traders to a change in market sentiment.
• It is easy to spot and identify, thanks to its distinctive characteristics.
• It can be used as a confirmation of resistance levels. It can confirm that the resistance is holding when it forms near a strong resistance level.

Cons:

• The hanging man could provide traders with false signals. In such a situation, traders could make the wrong move and either lose money or miss out on better opportunities.
• Considering the overall market context before reacting to the hanging man pattern is essential. If this isn't done correctly, market participants could, again, miss out on potential opportunities.
• Interpretation of the pattern can be subjective. Traders might have different thresholds for determining the pattern's strength and relevance.

How does the hanging man compare to other candlestick formations?

The hanging man is the name of a bearish hammer candlestick. The hammer pattern can come in several forms, some bullish, while others bearish. Here is how you can differentiate them.

The hammer candlestick

A traditional hammer candlestick forms when the closing price is above the opening price, similar to the hanging man. However, despite strong selling pressure, it signals that the buyers still have control of the market. As such, it is a bullish signal. The inverted hammer can also form as another bullish signal.

The shooting star candlestick

The shooting star candlestick is another bearish signal. It is similar to an inverted hammer, only this one is strongly bearish. As such, it announces the arrival of a price crash. Shooting Stars are formed when the opening price is above the closing price, with the long upper wick.

Why should you look out for the hanging man candlestick?

The hanging man candle serves as a valuable tool for technical analysis. It is particularly useful in identifying potential bearish reversals and solid resistance levels. However, it comes with a few drawbacks. False signals are the main danger when using them, so traders should exercise caution.

Also, they should never rely solely on this signal or believe its appearance guarantees a trend reversal. When it comes to the crypto industry, it is all relative. The hanging man is a good signal to look for as it is easy to spot. After spotting it, always use other indicators or fundamental analysis to confirm what is happening before reacting to it.

FAQs

What does the hanging man candle show?

The hanging man candle signals a potential trend reversal from bullish into bearish. It is a candlestick pattern that forms at the end of an uptrend and usually marks its end.

What is the success rate of the hanging man candlestick?

The hanging man candlestick often appears at the end of a bullish trend. However, its success is not fixed or universally consistent. This is why traders must confirm its validity by checking out other indicators.

What is the opposite of a hanging man candle?

The opposite of the hanging man is the hammer, in the sense that the hammer announces a bullish trend reversal. Visually, the true opposite would be the inverted hammer, which is both bullish and it has a long upper wick.