Different patterns of Candlestick part.2

Hammer and Hanging man has same characteristics, but depending on the prior trend, it distinguishes completely opposite reversal warning for the upcoming trend. As shown in the figure below, both hammer and hanging man patterns have small bodies, short upper shadows and long lower shadows.

The Hammer

The Hammer pattern occurs in a downtrend and is a bullish signal that forecasts of a possible trend reversal. It is called Hammer, because it looks like a Hammer at the bottom of the downtrend. The long lower shadow of the Hammer is a bullish signal regardless of the color of the candlestick’s real body and it means the trend has reached its bottom. When a Hammer appears in the middle of downtrend, it indicates that the underlying sold off sharply, but demand returned, forcing the price back up to close at or near the high for that period. However, a Hammer in a downtrend doesn’t always mean a signal for reverse trend. It is only a hint for a possible change in trend, so other form of indication should be confirmed.

The Hammer pattern characteristics:

  • long lower shadows that is three to four times longer than the body.
  • Short or no upper shadow.
  • Closing price is higher than opening price
  • It is a bullish signal regardless of the color of the body.

The Hanging Man

The Hanging Man is a bearish signal that appears in an uptrend and tells of a potential trend reversal and it means that the trend has reached its peak. Its name comes from a negative resemblance of a hanging man with dangling leg, which suits its indication of upcoming downtrend. Since the long lower shadow of the hanging man specifies that demand for the underlying security forced the price into the upper third of the price range for that period, and a follow up confirmation of a trend reversal is recommended; an engulfing pattern or a piercing pattern is another form of trend reversal pattern.

The Inverted Hammer and Shooting star

Alike the hammer and the hanging man patterns, the inverted hammer and shooting star pattern is also a form of reversal trend signal, but inverted. The long upper shadow of both patterns signifies that sellers have tried to sell at higher price. An inverted Hammer occurs at the bottom of downtrend and the shooting star at the top of uptrend.  

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