Forex represents an opportunity for investors to make easy money. Or so they think. In fact, Forex can be really tricky for first time investors who are not sure about what they are doing.
What is a Hanging Man?
A hanging man pattern happens at the end of an uptrend. It happens when there is a sell off near the market open but buyers would still be able to push this back so that the stock closes near or at the opening price. It is a type of a candlestick chart that shows the high, low, opening and closing prices for security in one day. The large sell off is generally seen as a sign that the buyers are losing control.
Breaking down Hanging Man:
The Hanging Man doesn’t necessarily mean that the buyers or the bulls are losing control altogether but it is a sign that there is a change in the direction of the market and in the momentum. Hanging Man formations will be used by daily traders to identify different market patterns. When a Hanging man forms at the end of downtrend it is called a “hammer”.
The Hanging Man candle is similar to the hammer but it forms at the end of an uptrend. Generally speaking, when the pattern in the market becomes too expected, the market will probably move in the opposite direction. Therefore the Hanging Man formation should be approached with great caution and with more indicators to determine how it will be handled.
Anatomy of the Hanging Man:
The Hanging Man usually indicates a trend’s exhaustion. Even though the buyers manage to bring the market so down, they bring it back up and this means that the bearish traders are gaining control.
Although there are a lot of candlestick charts, there are a few indicators and features that will help traders identify a Hanging Man.
The most important indicator and sign would be the end of the lower shadow. A true Hanging Man will feature a thin line that is at least double the length of the body. This means that the selloff has to be followed by a surge that happens at the end of the day that would bring the stock back up to its opening price.
Question of reliability:
The Hanging Man is one of the most used indicators but this doesn’t mean that it is very reliable. It is considered to be a mild to fair indicator. The shape of the Hang Man doesn’t really show that the upward trend is about to end.