How to identify and trade the Hanging Man candlestick pattern at Olymp Trade

Hanging man pattern on Olymp TradeThe interesting-sounding candlestick pattern of a hanging man is commonly used in trading. It does not appear very often but can be identified on various time frames in different markets. Moreover, the formation is easy to recognise on the price chart. It signals a potential reversal of the trend. How to recognise it and how to apply it in trading? Read today’s article and you will get the answers.

Key TakeawaysπŸ”‘

β†’The hanging man candlestick pattern can signal a potential reversal of an uptrend.
β†’Identifying a hanging man pattern requires a small candle body with a long lower wick.
β†’The hanging man pattern can be used to open short positions or manage ongoing long trades.


Identifying the hanging man pattern

The hanging man pattern can be identified during the uptrend. It is one candle pattern in which the colour has no importance. What is crucial though, is that the candle’s body is small. There can be a short upper shadow or no shadow at all. And the lower wick is quite long. This is the hanging man formation.

Hanging Man candlestick pattern
Hanging Man candlestick pattern

The appearance of a hanging man reveals that the sellers are taking control over the market and the prices will most probably fall. The buyers are losing strength. Thus, you can use this pattern to open a short position or to manage ongoing long trade.

Remember that the hanging man should always have a long lower wick. It ought to be at least twice as long as the candle’s body.

Trading with the hanging man pattern

When to open a position

You can open a trading position after you receive a confirmation to your transaction. It happens when the price moves below the low of the candle from the hanging man pattern and the downtrend begins. Take a look at the EURJPY chart below.

Hanging Man pattern on EURJPY 30m chart
Hanging man pattern on the EURJPY 30m chart

Setting a stop loss

It is quite common to place a stop loss over the current highs. It means above the high that the hanging man or the preceding candle has created.

Hanging man pattern on local highs in a downtrend

The hanging man should form at a swing high and after a move higher. You do not need, however, to trade against the trend. If you look at the general trend and it is a downtrend, you can still trade along with the trend. Just wait for the price to move higher to the level of resistance. This way you will not only trade along with the trend but at a key level as well, and this gives you a confirmation of the transaction. In the picture below you will see such a situation. A hanging man appeared at a local high during the downtrend.

You can trade with hanging man to join the down trend at correction tops
You can trade with the hanging man to join the downtrend at correction tops

The hanging man pattern used for trade management

The hanging man pattern, as I have already mentioned, can be also used to manage an ongoing long trade. When you have opened a long position and you have just spotted the hanging man, you have two options. You can either exit the trade at this point or tighten your stop loss.

You can use hanging man pattern as an exit signal for your long trade
You can use the hanging man pattern as an exit signal for your long trade

Comparison of a hanging man and a hammer patterns

The hanging man and the hammer patterns look quite similar to each other at the first sight. Therefore it is important you are familiar with both and you are able to distinguish them.

The similarity lies in the shape of the candle. They both own small bodies and a long wick pointing downwards.

The difference exists in the place where they form on the price chart.

The formation which I describe today, the hanging man, develops at the top of the uptrend. It gives information about possible trend reversal.

The hammer can be found during the downtrend. Its appearance signifies that the price will probably rise.

Remember that a hanging man and a hammer pattern are similar just in shape of a candle
Remember that a hanging man and a hammer pattern are similar just in the shape of a candle

Pros and Cons of the Hanging Man Pattern πŸ”„

Using the hanging man candlestick pattern in trading decisions has its advantages and disadvantages:

πŸ‘ Pros:

  • Signals a potential reversal in an uptrend
  • Can be used in various markets and time frames
  • Provides opportunities to open short positions or manage existing long trades

πŸ‘Ž Cons:

  • Requires confirmation and additional analysis for reliable trading decisions
  • Similar patterns, such as the hammer, can cause confusion
  • Not foolproof and should be used in conjunction with other indicators

Detailed Aspects of the Hanging Man Pattern πŸ“‰

Aspect Description
Pattern Type Reversal pattern occurring during an uptrend
Candle Characteristics Small body, long lower wick, no importance to candle color
Confirmation Price moves below the low of the hanging man candle, signaling a downtrend
Stop Loss Placement Above the high of the hanging man or preceding candle

Final word

The hanging man pattern is very popular because it can be utilised in any market and with any time frame. However, it might be a good idea to introduce additional analysis such as trendlines, support/resistance levels or Fibonacci retracement areas.

The hanging man is a reversal pattern that develops during the upward movement. You can open short trades with it or you can manage your current long positions.

Olymp Trade has a free demo account on its offer. You can practise identifying the hanging man on the price chart there. You will invest virtual cash so there is no risk of losing your own money while training. After some time you should be ready to move to the live account and try the hanging man strategy in a real environment.

Please share any comments you might have regarding the hanging man pattern in the comments section down below.

Wish you high earning!

Q&A on the Hanging Man Pattern πŸ™‹β€β™‚οΈ

Here are some frequently asked questions about the Hanging Man pattern:

  • Q: What is the hanging man pattern?
  • A: The hanging man is a candlestick pattern that appears during an uptrend and suggests a potential trend reversal.
  • Q: How can I identify a hanging man pattern?
  • A: Look for a candle with a small body, a long lower wick, and no importance to the candle color.
  • Q: When should I open a trading position based on the hanging man pattern?
  • A: You can open a position when the price moves below the low of the hanging man candle, confirming a downtrend.
  • Q: Where should I place my stop loss when trading the hanging man pattern?
  • A: Place the stop loss above the high of the hanging man candle or the preceding candle.
  • Q: Can the hanging man pattern be used in any market or time frame?
  • A: Yes, the hanging man pattern can be applied to various markets and time frames.

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Bart Bregman

Full time day trading, and helping out with Olymp Trade wiki in my spare time to create an awesome platform for beginners. I'm a digital nomad that travels the world while working from everywhere!

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