The Hanging Man pattern is a bearish reversal pattern that appears at the peak of an uptrend. It indicates that despite the bullish momentum, sellers have started to outnumber buyers, causing the price to potentially reverse direction. The small body at the top of the candlestick represents a failed attempt by buyers to push the price higher, while the long lower shadow indicates that sellers were able to push the price down during the trading period. It is important to note that, as with any technical analysis tool, the Hanging Man pattern should be used in conjunction with other analysis tools and indicators to make trading decisions.
How to trade Inverted Hammer
The Inverted Hammer is a bullish reversal pattern that appears at the bottom of a downtrend. Here are some steps you can take when trading the Inverted Hammer:
Identify the Inverted Hammer pattern: Look for a candlestick with a long upper shadow, a small real body, and little or no lower shadow. The real body should be at the lower end of the trading range for the period.
Confirm the pattern: Confirm the Inverted Hammer pattern by looking for bullish confirmation signals such as a bullish divergence, a bullish chart pattern, or other technical indicators.
Enter the trade: Once the Inverted Hammer pattern is confirmed, consider entering a long position. This can be done by placing a buy order above the high of the Inverted Hammer candlestick, with a stop loss order below the low of the candlestick.
Manage the trade: As the trade progresses, continue to monitor the price action and adjust your stop loss and take profit orders accordingly. Consider trailing your stop loss to lock in profits as the price continues to rise.
Exit the trade: Once the price has reached your target level or if the price starts to move against you, consider exiting the trade to minimize potential losses.
It is important to note that the Inverted Hammer pattern should not be used in isolation to make trading decisions. Always consider other technical analysis tools and indicators, as well as market conditions, before entering a trade. Additionally, it is important to always manage your risk and trade with a proper risk management strategy.
An Inverted Hammer candlestick pattern is a bullish reversal pattern that appears at the bottom of a downtrend. It has a long upper shadow, a small real body, and little or no lower shadow.
The Inverted Hammer pattern indicates that despite the selling pressure during the trading period, buyers have come in and pushed the price up, indicating potential bullish momentum.
The Inverted Hammer pattern and the Shooting Star pattern are similar, but the Inverted Hammer pattern appears at the bottom of a downtrend and signals a potential bullish reversal, while the Shooting Star pattern appears at the top of an uptrend and signals a potential bearish reversal.
To identify an Inverted Hammer, look for a candle with a long upper shadow, a small real body, and little or no lower shadow. The real body should be at the lower end of the trading range for the period.
Other candlestick patterns that can be used in conjunction with the Inverted Hammer pattern include bullish confirmation patterns such as Bullish Engulfing, Piercing Line, and Morning Star.
Also Read : -
- Doji Candlesticks Explained.
- Evening Star Candlesticks Explained.
- Hammer Candlesticks Explained.
- Morning Star Explained.
- Three Cloud Cover Explained.