Hanging man vs. hammer: key differences and how to trade them

For a trader, learning to read and analyse charts is crucial for successful transactions. Hanging man and hammer are among the most common candlestick patterns, which provide valuable insights into price shifts, enabling traders to interpret information and adjust their strategies quickly.

In this guide, we’ll take a closer look at hanging man VS hammer candlestick patterns, discuss their main differences, and explore why recognising these bearish and bullish market tendencies is essential for enhancing your trading routine.

The Hammer Candlestick Pattern

The hammer pattern is a bullish trading pattern indicating a possible marketing trend reversal. As one of the most popular single candle formations, this pattern bears its name due to its stark resemblance to a hammer. The hammer pattern consists of three parts, including:

●      Small Real Body. The small body of the candle - typically green or red - is located at the top range. The color of the body doesn’t matter, but green indicates a stronger bullish potential than red.

●      Long Lower Shadow. The tail should be twice the body’s length or longer. It reflects that the prices were driven down but were pushed back by the constant buying pressure.

●      Short to No Upper Shadow. The upper shadow is absent or minimal. It means the price hasn’t shifted above the first price during the opening or the last price when the market closes.

The hammer pattern encapsulates the tug-of-war between sellers and buyers, with the former attempting to push the prices down, and the latter returning to the opening levels.

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The Hanging Man Candlestick Pattern

The hanging man candle is a bearish trading pattern that indicates the reversal from an uptrend to a downtrend. The pattern is easy to recognise as it strongly resembles a hanging figure. Hanging man consists of a couple of parts, including:

●      Small Real Body. Located at the top of the candle, the small body can be either red or green, with the former indicating a bearish tendency and the latter a bullish one. Overall, the colour of the body typically doesn’t matter, while the size and proportion are what you should be paying attention to.

●      Long Lower Shadow. The hanging man pattern is characterised by a shadow two or three times the body length. The long tail showcases strong selling pressure, with buyers managing to bring the prices back up.

●      Little to No Upper Shadow. In this trading pattern, the upper shadow is either absent or minimal. This feature indicates that after the market opening, there was little to no upward price movement.

The hanging man pattern reflects significant selling pressure during trading sessions, with price plunges hindered by the buyers, who manage to push the price up to near the opening levels.

Key Differences Between Hammer and Hanging Man

At first glance, identifying hammer and hanging may be challenging due to the patterns’ visual similarity. Here’s a brief hammer VS hanging man comparison to help you hit the ground running:

●      Visual: The hammer pattern looks similar to a short hammer, while the hanging man resembles a hanging figure.

●      Nature: The hammer pattern is more bullish, while the hanging man is more of a bearish pattern.

●      Trend: Bullish hammer candlestick occurs at the bottom of the trend, while bearish hanging man is at the end of an uptrend.

●      Prices: Hammer informs about potential upwards prices, while hanging man warns about lower ones.

●      Use: Hammer can be used as your entry point, while hanging man is the exit point.

Summary

Learning to recognise hanging man and hammer candlestick patterns is essential for quickly predicting market trends. Still, they work best in tandem with other forms of technical analysis and tools that will help you confirm the overall trend, minimise your reaction time, and improve your performance.