Hanging man vs Hammer Candlestick Pattern

Two types of financial market analysis fall under the umbrella. Fundamental analysis relies on information such as the macroeconomic conditions, quarterly earnings and the prevalent interest rate to forecast future price movements. Technical analysts believe that all information available reflects the prices.

Technical analysis uses price movements from the past to predict future price moves. Candlestick price charts are used for technical analysis. Hanging Man and Hammer patterns give traders clues.

Let's examine what these terms mean and the main points of difference.

What's a candlestick?

Candlestick is a type price chart. This type of price chart is used for technical analysis. It displays the opening, close, high, and low of a stock over a specific period. Japanese rice traders and merchants first used a candlestick to track the rice market. Later, it was popularized in the United States and around the globe.

The real body is the wide portion of a candlestick. This tells traders whether the closing price was lower or higher than the opening. The chart also shows the colours. If the stock closed lower, black or red is used. White or green are used if it closed higher.

The Hanging Man candle and Hammer candle look similar. Both candles have small bodies and long shadows, but the Hanging Man pattern is bearish while the Hammer pattern is bullish. The main difference between these two patterns is their short-term trend.

Hammer candlestick

The trend's bottom is represented by the bullish hammer candlestick. The hammer consists of a small readbody at the top of the trading range and a long lower shadow. The size of the shadow below the pattern can be used to determine its bullishness. A longer shadow means that the pattern is more bullish. The trend of the hammer before this should be a downward trend.

Prices will fall to new lows when the hammer pattern is formed. The security's price rises at these levels, and the session ends at its highest point. This suggests that buyers stopped prices from falling further and drove them to the peak of the trading session.

You should be aware that prices can continue to rise even after the confirmation candle has been lit. The price could rise if the confirmation candle and long-shadowed Hammer are used. This is not the best place to buy.

Besides, Hammers don't provide a price target. It can be difficult to determine the potential reward for a hammer trade. Traders should be cautious and exit should be based on other candlestick patterns.

Hanging Man

Hanging Man is a top-reversal pattern. It is a sign of a market peak. If it occurs before an uptrend, a candlestick pattern is considered a hanging man. A bearish hanging man is a pattern that puts selling pressure at high levels.

During an uptrend, bulls control the market and we see highs. However, the hanging man pattern indicates that sellers or bears have succeeded in regaining control. They want to stop the trend, which causes the price to fall to its lowest level.

Hanging Man is a common pattern. It could be used by traders to highlight these patterns on charts. This could make it a poor predictor for price movements. Traders may be more interested in higher volume, longer shadows, and increased volumes. A stop loss can be used by traders above the hanging man's high.

Conclusion

Candlestick patterns that indicate trend reversal include the hanging man and the hammer. They differ in the nature of their trend. A pattern with a rising trend that suggests a bearish trend is called a hanging guy, while a pattern with a falling trend that indicates a bullish trend is called a Hammer. The patterns and their components are identical.