Identified after a rally – a Japanese candlestick that has a long tail to the bottom, but a narrow body where the open and close are very close to each other
The hanging man, like the hammer has a small body and long tail to the downside. It is identified after a rally, and suggests topping. The ability of the market to push lower is a early sign that the market could be reversing. This should not be taken stand alone signal to trade off of as a reversal signal. If the market is trending sharply, this would reflect simply a pause in the trend.
Example: Hanging man candle can be bullish or bearish.
Example: Inverted hanging man is also found after a rally, but has the long tail to the upside, suggesting rejection.
After a decline, this “hanging man” type candle is a hammer.
