japanese candlestick charts Prayed candle sticks Internationally used by investors, financial institutions, traders (day traders, swing traders) in technical analysis that instantly determines direction and momentum for maximum profits. The use and popularity of candlesticks has grown worldwide in recent years due to their simple visual representation to determine the psychology behind market behavior compared to other technical charting methods such as bar charts, line charts, etc. etc.
As a trader, we are always striving to improve profits or ROI (rate of return on investment) and are constantly looking for ideas or methods to learn and implement in trading for better entry and exit points using technical analysis.
As I constantly interact with traders, I find that traders constantly overlook or misunderstand the most important individual candlestick types as they resemble a similar structure and occur frequently. The good news is that I will help you distinguish the differences between the hanging man and the hammer and use them to our advantage in trading.
The hung man and the hammer seem the same candle structure but the psychology behind the formation of these candles is completely different.
Hangman:
- Occurs in an uptrend
- Indicates a reversal signal but requires confirmation
- Small real body (black or white) at or near session high and with long lower shadows
The confirmation required for the reversal pattern when the hanging man appears in the uptrend and long lower shadows indicate that the bulls rallied during the session. The pattern is confirmed in the next session if the price closes below the body of the hangman (not the shadow itself).
Hammer:
Hammer occurs in a downward trend and it is a bearish reversal signal.
- Occurs in downtrend
- Indicates reversal signal
- Small real body (black or white) at or near session high and with long lower shadows
The market initially liquidated with the bears in control and by the end of the day the market rallied with the bulls in control.
The lower long shadow indicates that the bulls gained control during the session and can be used as confirmation.
How to trade:
Place the buy stop limit order just above the hammer and let the trade trigger during the session and manage the trade with the stop-loss and adjust it daily.
For negotiating the hangedplace the sell stop limit Order and let the trade go live during the session. This order is really important as we must wait for confirmation with the hanging man reversal patterns.
By implementing these simple steps in my trading, I ended up having more winning trades than spending trades when trading the reversal patterns using the hanged man and hammer.