Hanging Man Candlestick Pattern in Forex and How to Trade

The hanging man is a bearish candlestick. It looks very similar to a hammer, but it works in the opposite way. It is considered a strong bearish candlestick and can signal the start of a strong downtrend.

What is a Hanging Man Candlestick?

The hanging man is a candlestick that forms after a retracement in a downtrend or after an uptrend. Usually, its color is not the focus, but rather its formation. This formation always occurs in a selling zone or at resistance. This candlestick has a small body with a short shadow on top and a long shadow below, which represents the hanging man candlestick.

I am going to explain how you can find and identify this candlestick and how to trade based on it. In a similar way, I have already explained many other candlesticks, including the hammer, doji, tweezer top, and tweezer bottom. You can read about them too by clicking on the links.

How to find Hanging man Candlestick?

To identify a hanging man candlestick, you first need to find a chart that is either in an uptrend or a downtrend. In a downtrend, a hanging man can often be found during a retracement. In an uptrend, spotting a hanging man can lead to a good trade opportunity if it signals a potential reversal. To find a hanging man, you need to follow a few steps.

Step 1: Identify Selling Areas

First, you need to find a selling area. After identifying a selling area, mark it on the chart so that if a hanging man forms there, you can set up a trade.

Step 2: Shifting Timeframes

To determine potential buying and selling zones, you need to work with higher time frames first, such as the hourly charts. On the 4-hour chart, mark the buying and selling zones initially. On higher time frames, candlestick formations take a longer time to develop. Therefore, you should reduce the time frame to find a more precise entry. Start with the 1-hour chart, then move to the 30-minute, 15-minute, and finally the 5-minute chart. The entry should be made based on the candlestick formation within these time frame, focusing on a good selling zone.

Step 3: Identify the Hanging Man

To identify the candlestick, first understand its appearance. The hanging man candlestick has a small body with a long lower shadow, which represents the buying pressure (but failed). There might be a small upper shadow, but its presence is not crucial. The key feature are the long lower shadow and the small body.

How to Trade with Hanging Man Candlestick?

To trade this candlestick, you need to know how it reacts in the market and on which timeframe it works best. You need to backtest it thoroughly, and if in the backtest, even 70 out of 100 times the target is hit and there’s a change in trend, you can trade on this candlestick in that market.

In my case, I have traded using the hanging man candlestick in both forex gold and the Indian market in stocks and indices, and I will explain how this candlestick reacts in these two different markets.

Trading with Hanging Man Candlestick in Forex

If you want to trade using this candlestick in the forex market, you need to follow these key points.

• You will need to identify a good selling zone on a higher timeframe, such as the 4-hour chart.
• Now, you need to find the candlestick on smaller timeframes, from 1 hour down to 5 minutes.
• If the formation of this candlestick occurs after a green candlestick, it will be considered strong.
• Even if this candlestick forms a small peak, it should still form at the peak for it to be effective.
• As soon as the candlestick forms, you need to enter the trade immediately.
• For target, you can go for the exact size of hanging man or the next support or buying zone.
• Stoploss can be setup above the candlestick, but not too tight.

Trading with Hanging Man Candlestick in Indian Market

Now for this market, hanging man candlesticks do not react immediately; we’ve got to wait for the next candlestick for the confirmation. You can follow these points to understand better.

• For stocks, you first need to mark support and resistance in timeframes like day 1 or the 4-hour chart.
• Same thing with index when intraday trading.
• Shift to a smaller timeframe to look for the candlestick. Like 1 hour to minimum, like 5 min.
• After the formation of candlesticks, do not enter the trade like forex.
• Wait for the next candlestick after hanging man. If the candlestick starts to break the low of the hanging man, then wait for the candlestick to close.
• Enter the trade with a confirmation candlestick in the Indian market.
• For target, you can take it to next support.
• The stop-loss should be set half the size of the entire candlestick above it.

Conclusion on Hanging Man Candlestick

Hanging man is a bearish candlestick, and it brings changes in the trend. This candlestick can be identified by its small body and long shadow. Although the color doesn’t make much difference, if the candlestick is red, it is considered more effective. Its formation should always be at the top, in a good selling zone, or near a psychological number like 100, 200, or 300.

And if you want to trade using this, you can follow everything I mentioned and backtest it before trading. You need to backtest for both markets. So, that’s everything about the hanging man from my side. If you have any suggestions or find something better, feel free to contact us using the form provided below.

Happy trading to all the new traders!