The Hanging Man is a bearish pin bar candlestick pattern that will often reverse rally trends to the downside. That makes it a good indicator to use for exiting long positions and entering short positions. It’s really important that you learn how to properly identify this signal because there are other, very similar pin bars that you may potentially confuse with this one.
In general, you want to look for the Hanging Man pattern during long-term bear markets or sideways price action. Then you’ll want to see a short-term price rally before this pin bar shows up. It’s a trend reversal, so when you see it after a price increase it could indicate a potential market change. However, make sure you read this full article to find out how to use other indicators to confirm hanging man trades.
This pattern analysis is part of a much larger training series that will teach you everything you need to know to successfully trade candlestick charts. Make sure you take a look at the complete guide here: Japanese Candlestick Chart Analysis.
Hanging Man Candlestick
The hanging man pattern contains a single candlestick. This is a bearish indicator, but the actual candle can be bullish or bearish. Personally, I feel like bearish candles often contain more power and may lead to a stronger price decline. However, either can be used for trading.
This bearish pin bar should have a short body, a short upper wick and a long lower shadow to identify and match it to this pattern. Take a look at the illustration below to see both an bearish and bullish candle hanging man…
Hanging Man vs Hammer Patterns
If you’ve already gone through my other candlestick guides on this website, you’ve probably noticed the Hammer bullish pin bar. The actual candles for these two patterns can be 100% identical, so how exactly do you tell them apart and identify one from the other? The market trend is the #1 difference. When you have a short-term uptrend in prices and then have a pin bar pattern, it’s a Hanging Man. After price downtrends, it will be a Hammer pattern.
This means that at a quick glance just focusing on the actual candles, you can’t tell these two apart. You’ll have to look closer at the market conditions leading up to the signal to really determine if it’s bearish or bullish for future price action.
Personally, I’m not a huge fan of either pattern. They seem to show up too often on charts, so you end up with a lot of false indicators. I’d really prefer to see other patterns to confirm my trades, but I’ll still utilize pin bars in certain situations. In particular, I want to see strong confirmation from other trading indicators to really have a lot of faith in a pin bar. I’ll talk about this more later in this post.
Trader Emotional Analysis
In general, the hanging man candle tells you that there is weakening buyer activity and potentially growing selling activity that is likely to lead to a trend reversal down. This emotional state of trades can be viewed slightly different depending on whether the hanging man candle itself is green or red.
With my preferred setup, the red bearish hanging man candle, it gives a stronger impression that bears have managed to flip the market sentiment. The long lower shadow tells you that a price battle happened below the open and closing prices. The price action was ultimately contained within a small range. On it’s own, this might not sound bearish, but when it happens after an uptrend it tells you that the buying power has stalled out, which is the most important aspect here.
The same situation occurs with a green bullish hanging man candle, but I always feel like the there’s less of a potential for a price reversal since bulls still managed to stay in control. However, it’s still a signal that their buying strength and activity levels have dropped, which is the main reason why a trend reversal could occur.
How to Trade the Bearish Pin Bar
The main thing you need to worry about when trading this bearish pin bar is the market trend. Pay attention to both short and long-term trends. This pattern will work best with a long-term bear market or sideways prices, but you want to see a short-term price increase right before the candlestick. Take a look below at the chart I’ve created for you from a cryptocurrency token that shows two examples of this pattern in action…
There’s both a red and green hanging man candle in this chart. Both lead to the same price decrease, although the red bar looks to have a bit more power behind it, so it generated a more profitable trading opportunity. I find the red bars to be more accurate and reliable, but you still have to be careful with them.
Hanging Man Support & Resistance
The other key to trading this pattern successfully is to combine it with other indicators. In particular, I’m looking for a hanging man candlestick to show up when the price action goes up to a line of resistance. Those are the spots where the price action is most likely to reverse, so I can have more confidence placing a trade this way. I could sell off a position I’ve been holding to take profits and/or I can place a short order to try to profit from the upcoming decrease in value.
It’s easy to say to wait for the price to hit a resistance level. Plotting those levels on a chart is actually the more difficult part that you’ll have to practice to master. Moving averages, supply and demand, trading volume, trend lines and many other indicators could potentially be lines of support or resistance. This can change during different market conditions and even from one asset to the next, so I don’t have a set rule I can provide for you to follow here. The best advice I can give is to plot as many different potential lines of support and resistance as you can on a chart. Take a look at the past price movements to see how they’ve interacted with the lines you plot. You can often figure out which indicators are more likely to help contain the price action in the future this way.
One final note about the hanging man pattern – use stop loss orders! I find this candlestick to be one of the less reliable patterns, so if I’m going to trade it I want to see other factors confirming that fact. When I do place an order, I’ll also set up a stop loss as well to help ensure that I don’t lose too much if I’m wrong about the trend reversal. As the value rises to a resistance line to indicate an possible trade opportunity, there could be a breakout rally causes the exact opposite to occur. I feel like this situation happens more often with the bearish pin bar compared with other patterns, so I want to protect myself in case that’s true.