Trading based on patterns is usually a safe practice that has proven beneficial for many traders. The use of patterns can also be used to improve your strategy and trade more consistently. This means that you can trade your forex, commodities, or stocks more effectively and consistently and thus be satisfied with your performance.
What is a Hanging man Candlestick Pattern?
The hanging man is a bullish candlestick pattern that forms when a bullish trend continues and the price rises. In other words, it is called the hanging man because it shows that the price has risen but is about to go up again. This bullish candlestick pattern can appear in stock, oil, and commodities markets. It is also called the black body because of its color. It is one of the most easily recognizable bullish candlestick patterns because of its color.
How Does It Work?
This candlestick pattern is formed when the price stalls for two sessions after a bullish trend. The third session ends lower than the real open price but not as low as the close. It is believed that this pattern signals a change in market sentiment from bullish to bearish.
When Does It Occur?
The hanging-man pattern can show up in the middle of an uptrend. This means that after a period of a bullish trend, the price is expected to go further up, but instead, it stops. The third session is expected to be bullish, but it is bearish.
How to Trade It?
Because of its shape, you may think that the hanging-man pattern can be traded based on confirmation. However, it is not as simple as that. Because the pattern appears in the middle of the trend, you will be able to confirm the pattern only when the price resumes the uptrend again. Besides that, you may use this pattern as an indicator to short a bearish market.
How To Interpret
The hanging-man candlestick pattern shows that the price of a security has risen on a recent trend, which is about to resume. This can be interpreted in two ways:
The first interpretation is that the pattern shifts from bullish to bearish sentiment. This is because since the pattern shows price rising, it appears that traders would have continued to buy, and thus demand continues to rise while supply stays constant. Essentially, this means that there is a shortage of supply and hence demand for the security.
The second interpretation is that there is a shift from bearish to bullish sentiment. This is because the price has risen in the past and is expected to rise again. This indicates that the trend is still in progress; hence demand continues to rise while supply stays constant. Essentially, this means that there is still a supply shortage and hence demand for the security.
Where to Find it
The hanging-man can show up in candlestick charts. Candles are patterns that are easy to read in charts. The pattern is the average of one candle and its body. For this pattern, it will be the average of two candles. In this case, the longest candle is the body, which is the lowest, and the second candle is the one that closes lower than the body.
Hanging-man Candlestick Pattern and Blockchain
You can find the hanging-man candlestick pattern in blockchain transactions. In blockchain transactions, the blocks are formed by the miners. As they are involved in validating the transactions, they must solve a puzzle to ensure they are valid. This is the puzzle they solve, and it is called proof of work. They must try to guess a number, and if they get it right, they will be allowed to add a block onto the blockchain. This shows that there is a lot of demand for the blockchain transaction while supply stays constant.
Hanging-man Candlestick Pattern and ETFs
The hanging-man candlestick pattern is also found in ETFs, which are listed securities that track indexes such as the S&P 500 or the Russell 2000. This means that the pattern can be seen in equity indices such as these. The higher the ETFs’ prices, the more likely it is that a hanging-man candlestick pattern will occur. If a hanging-man candlestick pattern occurs, it is a signal for investors to look for new opportunities. However, if a pivot does not accompany it, it is less meaningful than if it is.
The hanging-man pattern can also be a downside breakout pattern that can signal reversals. This is because it shows that the price has risen and will rise further. This is a very common type of pattern, which is when the price is likely to go down as well.
Hanging-man Candlestick Pattern and Forex
The hanging-man candlestick pattern also shows up in forex trading. This means that this pattern can appear when traders are not certain about the price trend. It appears in forex because currency pairs also carry high volumes, showing up in forex trading.
Hanging-man Candlestick Pattern and Stocks
It is a bearish signal when you observe the hanging-man candlestick pattern in stocks. This means that it is a signal for traders to sell the stock because demand is expected to fall while supply remains constant.
Cons of Hanging-man Pattern
This pattern shows that the supply cannot meet the demand, and thus it shows a bearish situation. However, this pattern can also show a bullish signal, which means that it shows that supply is supposed to change while demand remains constant.
Pros of Hanging-man Pattern
This pattern shows that the price is expected to rise, but instead, it stalls. This indicates that there will be a shift in sentiment from bullish to bearish. This becomes a signal for traders to look for new opportunities.
The hanging man candlestick pattern is a bearish reversal pattern that forms in the middle of a bullish trend. This can be found in commodities, stocks, and blockchain transactions. You can find this pattern in the middle of a trend and use it as an indicator of a bearish shift in market sentiment. It is also a signature of supply and demand becoming equal.