This bearish hammer candlestick is commonly known as a hanging man. So in this bearish hammer candlestick discussion, we will introduce what a hanging man candlestick is too. For more details about the bearish hammer candlestick or hanging man, you can understand it through the following article. Don't forget to register yourself with GIC and take advantage of GIC's revolutionary features!

Understanding Bearish Hammer

The bearish hammer candlestick is also known as a hanging man. It occurs when the opening price is above the closing price, resulting in a red candle. The wick on the bearish hammer shows that the market is experiencing selling pressure, indicating a potential reversal to the downside.
Hanging man is a bearish reversal candlestick pattern that has a long lower shadow and a small real body. This candlestick pattern appears at the end of an uptrend indicating further weakness in price movement. It forms when bulls have pushed the price up and are now unable to push further.
 
This candlestick chart pattern has a small real body meaning the distance between the open and close is very small. There is no upper shadow and the lower shadow is twice the length of the body. This pattern provides an opportunity for traders to square up long positions and enter short positions.

Characteristics of the Bearish Hammer Pattern

The characteristics of the Haning Man pattern are included in the family of single candle formations. This candle is created when the open, high, and close have the same price, while there is a long shadow down. Ideally, this shadow or wick is at least twice the length of the body.



Similar to other candlestick patterns, the hanging man is representative of current market sentiment. Since it is a bearish formation, it occurs at the top of an uptrend. Despite the high close, the long lower shadow indicates that more bears are participating in the market. Thus, the bears’ advance can only come at the expense of the bulls, who have been controlling price action up until this point. Extensive selling pressure was present during the portion of the session that created the wick, although the bulls forced a close near the session high. Below are some points to keep in mind when identifying this pattern on a candlestick chart:
  • So there is no or little shadow above
  • The lower shadow should be twice the length of the real body.
  • The actual body should be on the upper side of the candle.
The hanging man candlestick pattern signals that the bearish trend may be over and prices may now rise. To qualify as one of the hanging man candlestick patterns, the sequence of market events must meet the following four conditions:
  • First, there must be a white body (open > close).
  • Second, for most of its duration as a white body, it must trade below its opening price.
  • Third, the top wick should be very slight; if there is a top wick at all then it is not hanging but more like 'dipping'.
  • Fourth, after forming a long white body followed by a long black body (close < open), price movement above the high will result in confirmation of a bullish reversal.
This pattern is considered quite rare. Therefore, traders will often wait for some confirmation before considering taking action.

How to Use the Bearish Hammer

Hanging man is a reversal candle that occurs when a bullish trend is about to reverse. Therefore, the first thing you need to do is identify the bullish trend. It can be on a 30-minute, an hourly, or any chart with any period. Second, identify when the candle forms the pattern shown above. In most cases, opening a short position when a hanging man candle forms is not an ideal situation. Because at certain times there is no reversal. Therefore, you should wait and see that a downtrend is forming. Ideally, you should enter the trade after the third red or bearish candle because that will confirm that the bears are taking over.


Example of this candle pattern

 

 

 

The chart above shows the hanging man pattern on the EUR/USD pair. As you can see, the pair was in an uptrend when the hanging pattern occurred. This became the starting point of a new reversal trend. Another way to use the hanging man pattern is to use pending orders. These are orders that are initiated only when a currency pair or other asset reaches a key level. In this case, you can place a sell-stop below the lower shadow. And then, you can protect the trade using a stop loss placed slightly above the top of the hanging man pattern.

Bearish Hammer Pattern When Uptrend

Since a hanging man occurs when a bullish trend is believed to be over, you can try to measure the length of the trend, and only take signals if the bullish trend is longer than a threshold you set. The best way to do this is probably to measure the length of the last uptrend, and decide to only enter a position if the current uptrend is longer than the previous one. The goal is to determine when the trend is starting to get old, as a hanging man is most likely to profit if the uptrend is nearing the end of its life. So, here are the rules for the strategy:
  1. A hanging man
  2. The current trend is bullish, and it is longer than the previous bullish trend. You measure length as the distance from the low to the high.

You then exit the trade after 5 bars.

Bearish Hammer Pattern When Downtrend

If the hanging man will occur during an uptrend, then the bearish hammer occurs during a downtrend. To trade when you see an inverted hammer candlestick pattern, start by looking for other signals that confirm a possible reversal. To trade an uptrend, you can 'buy' (go long). If you think the signal is not strong enough and the downtrend will continue, you can 'sell' (go short). You can follow these steps to trade when you see an inverted hammer candlestick pattern:
  1. Login to your trading account
  2. Search for the asset you want to trade in the 'searcher' panel.
  3. Enter your position size
  4. Select 'buy' or 'sell' on the deal ticket
  5. Trade confirmation

Advantages of Using Bearish Hammer

The main advantage of the hanging man candlestick pattern is that it indicates a reversal. The hanging man candlestick consists of a candle with a small real body and a long upper shadow – resembling a “man hanging by his toes” – meaning that if an investor sees it on their chart, they should probably sell or close their position. Like every pattern, the hanging man is no different in that it has its strengths and weaknesses. Its real strength is that it signals a potential reversal and the end of an uptrend. In addition, the hanging man can further reinforce the idea that a reversal is coming, if the trader has consulted other technical indicators that also point to a correction in the pair’s price. Explained below are the main advantages of trading the hanging man forex pattern–
  1. It can be used and traded on all time frames and in many different markets.
  2. Relatively speaking, it is quite accurate in generating reversal signals most of the time.
  3. It is very easy to integrate this pattern with other reversal signals and indicators such as double EMA.
After learning about the bearish hammer candlestick and other discussions, then it is certain that you have understood the pattern of this candlestick itself. To go deeper, you can read How to Read Candlesticks in Forex Most Accurately.