Hammer Candlestick and Hanging Man Candlestick are both very powerful candlestick formations. Before we move into any form of explanation, let us first take a look at their shape:
Hammer is the Hollow Candlestick with long lower shadow and small upper shadow and Hanging Man is the Filled Candlestick with long lower shadow and small upper shadow. In either cases, the upper shadow can be non-existent.
- A Hammer will always represent a Bullish trend will a Hanging Man will always represent a Bearish trend.
- A Hammer appears at the end of a downtrend while a Hanging Man appears at the top of a Bullish trend.
A quick look into a chart:
In case of Hammer Candlestick:
- Because it occurs at the end of a Bearish trend, it will imply a Bullish reversal.
- The lower the lower shadow of the Hammer, the lower the Low price of the underlying asset during the trading session. This means that the seller dominated but later the buyers rebounded with a strong note. So, does that mean a Bullish trend? Yes, it does but you will still need a confirmation. So, the Hammer must be followed by a Gap Up or a long Real Body Hollow Candlestick. Gap Up means that for the next trading session, the opening price of the underlying asset needs to be above its closing price in previous session. If you see that, it will signify an uptrend.
In case of Hanging Man Candlestick:
- Because it appears after an uptrend or a Bullish trend, it will imply Bearish reversal.
- A long lower shadow for the Hanging Man means that the prices were pushed down by the sellers but the Bulls again regained their foot and the prices were driven up. However, because the long lower shadow or a selling pressure appeared, it can imply Bearish trend. A confirmation is still required and hence, look for Gap Down or a long Real Body Filled Candlestick in the next session. A Gap Down means that the opening price of the underlying asset for the new session must be below it closing price of the previous session. If that happens, there is an imminent downtrend or Bearish trend.