Japanese candlesticks are the basic building block of most technical analysis. That makes the ability to recognize different candlestick types a crucial trading skill.
First though, let’s start with a definition.
What Is a Hanging Man Candlestick?
A hanging man is a candlestick with a short real body, little to no upper shadow, and a longer lower shadow. It indicates that the open and close prices are close together and near the top of the trading range. Hanging man candlesticks are commonly seen during topping formations, reversals, trending moves, and volatile periods.
Unlike some other candlestick types, their name does not have a japanese meaning. Instead, they are named for the look of the candlestick and its connotation. They remind people of the guessing game “hangman” and may serve as an omen of negative price action. In trading terms, a hanging man candle signals that the bears are trying to resist continuation of a bullish trend.
Hanging man candlesticks paint a picture of a last stand. With a short body, the long lower wick usually stands out most. On the chart, it looks like the bears attempted to reverse the trend but the bulls replied, “Not so fast.”
Technically, the lower wick should be at least twice as long as the body. It doesn’t matter what color the body is. But if the body is negligible or nonexistent, it should instead be classified as some type of doji.
Furthermore, some would say that it is only a hanging man if it appears at the end of an uptrend, leading to a bearish reversal—which would make it more of a multi-candlestick pattern.
By the same rule:
- A hammer is a hanging man-shaped candle that signals a potential bullish reversal during a downtrend.
- An inverted hammer is an upside-down hammer that signals a potential bullish reversal during a downtrend.
- A shooting star is an inverted hammer that signals a potential bearish reversal during an uptrend.
It can get a little confusing because both shapes can signal direction, depending on where they appear. This is probably part of the reason many traders call all of them hammers (or inverted/upside-down hammers).
The main thing you need to know is this:
When you see a “T”-shaped candlestick, where it occurs in trend is more important than whether it is rightside up or not.
As always, context over criteria.
More on how to trade hanging man candles in a moment.
First, let’s illustrate how they are formed.
How Are Hanging Man Candles Formed?
A hanging man gives the impression of a bearish holdout.
That impression is usually correct.
Within the time period of the candle, price fell lower then rose back to end up near where it began. Thus, a hanging man candlestick on a daily chart implies that the bears attempted to reverse the trend but were rebuffed for the day. However, the candle probably took on various shapes before closing as a hanging man.
You’d need shorter timeframes to see a more complete picture.
That’s also why you should usually wait for confirmation. It’s not officially a hanging man until the candle closes. And it can be dangerous to make trades based on incomplete candles.
You can never be 100% sure how a candlestick will look at the end of the time period.
That’s one of the reasons it’s so important not to get too focused on any single candle.
Where Hanging Man Candlesticks Fit in the Chart Narrative
The markets are often characterized as a battle between the bulls and the bears.
Hanging men indicate that the fight is fierce, with the bears unable to retake control. Obviously, no single candlestick can determine an entire trend. Still, hanging men that appear at the right time can have significant implications on future price action.
Be on the lookout for them during:
- Tops – Hanging men sometimes appear along the resistance levels of local highs and topping formations.
- Reversals – Hanging man candlesticks are sometimes seen in and around reversal formations, especially bearish ones.
- Trending Moves – When bearish reversals fail on lower time frames, it often leads to hanging men on higher time frames.
- Volatile Periods – When volatility climbs, candles that imply back-and-forth action, like hanging man candles, become more common.
They may also appear in certain types of candlestick patterns.
To become a successful trader, understanding candlesticks is a great place to start. But you should also learn how candlestick patterns and chart patterns work. Plus, you need to be able to recognize cycles, trends, and price levels. From there, you can begin to read the story in the charts.
Tools like chart markup and trading indicators can reveal even more. And once you’ve chosen your asset(s) and trading style, the full chart narrative truly comes into focus. The charts will basically speak to you at this point.
By looking at the history of the chart, you can identify how price action played out around prior hanging man candles (or patterns that included them). Moreover, you can compare historical structures in price and your other tools to current price action.
Now, you’re actually doing real technical analysis.
How To Trade Hanging Man Candles
You should never trade based on a single candlestick.
However, certain candle shapes may give you some trading ideas, especially given the right context. Hanging man candlesticks are one of those shapes.
In addition to the overall structure surrounding a hanging man, there are some other things worth paying attention to.
- Trading Volume – The greater the trading volume during any candlestick’s formation, the greater its potential implications on price action.
- Lower Shadow – The longer the wick of a hanging man candle, the more likely it is to set in a bearish bias and/or test rising support.
- Price Formations – Inverted hammer candlesticks often appear along the bottom of various bearish price structures, such as double tops.
Generally, the fewer of these factors that are present, the less noteworthy the candle.
In order to form a complete trading strategy, you need to understand the basic math of trading, order types, and trading psychology. Even more importantly, you need to develop your own edge and learn risk management. And if you really want to take it all the way, look into options and trading automation.
Before you get there though, there’s still more to learn about the candles themselves.
Other Types of Candlesticks
A hanging man candlestick is but one of many candlestick types.
You’d be wise to get familiar with all of the other ones too.
- Bearish Belt Hold
- Bullish Belt Hold
- Doji
- Dragonfly Doji
- Gravestone Doji
- Hammer
- Inverted Hammer
- Long Candle
- Long-Legged Doji
- Marubozu
- Shooting Star
- Spinning Top
Not all candlesticks shapes earn names—so you should probably check out the ones that do. Just keep in mind that it’s not necessarily about memorizing all of the ins-and-outs of each. It’s more about ingraining the principles of price action into your brain.
In fact, you’re free to forget all of the names as long as you can look at a candlestick and understand what it means.
Takeaways
To review:
Hanging man candlesticks are a type of candlestick that signals a bearish holdout. They tend to show up during topping formations, reversals, trending moves, and periods of high volatility. That means they can help you find winning trades.
Of course, there are other types of candlesticks that you should learn about. And even so, candlestick analysis alone is not enough to trade successfully.
Nonetheless, you’ve now added one more tool to your toolkit.
Have questions or more information to add? Contribute to the conversation in the comments below! Or, if you know someone who could benefit from this post, share it with them. You can also check out our Japanese Candlesticks Guide to improve your candlestick analysis skills.