Hanging Man

The Hanging Man is a Short-term Bearish Pattern indicating that the prior uptrend is about to end and may reverse to a downtrend or move sideways. This pattern is an indication of a financial instrument's SHORT-TERM outlook.

The name "Hanging Man" is used because it has a gloomy connotation, and also because the candlestick that defines this pattern looks like a hanging man with dangling legs. The Hanging Man pattern is characterized by a small Real Body near the top of the price range. The Real Body can be black or white, although a black candlestick is preferable. A black candlestick is slightly more bearish since it shows that the close could not get back up to the opening price level. The Hanging Man has a long lower shadow that should be at least twice the length of the Real Body. The upper shadow should be very small or non-existent.

Trading Considerations

In cases where a major uptrend exists followed by a Hanging Man, the investor should consider vacating long positions.

Criteria that Support

A Hanging Man can be confirmed by a bearish gap between the Real Body of the Hanging Man and the open on the next session. In other words, the investor should look for the next session opening lower than the Real Body of the Hanging Man. The greater the gap, the stronger the signal.
A Hanging Man may be a stronger signal if the subsequent session shows a black Real Body with a close lower than the close of the Hanging Man.
A Hanging Man may be a stronger signal if it is followed by another, well-formed Hanging Man in the next session.
The longer the Lower Shadow of the Hanging Man the greater the significance of the pattern.
The smaller the Real Body and the Upper Shadow the more significant the pattern.

Criteria that Refute

It is important to view signals in the context of prior price action. If the uptrend is strong and there are major bullish indicators before the Hanging Man, then perhaps the bullish momentum is overwhelming and the Hanging Man won't work. In such cases it is wise to wait for bearish confirmation before acting.
The uptrend may still be in force if the next session opens higher than the Real Body of the Hanging Man.
A Hanging Man with a white Real Body (where the close is higher than the open) may indicate weakness in the pattern.