The Hanging Man and Hammer Patterns
Hanging Man and Hammer Patterns
The hanging man and hammer patterns are trend reversal patterns that consist of the same type of candlestick, which are called umbrella lines because of their shape. In other words, both the hanging man and the hammer pattern have the same shape, though the one is bearish while the other is relatively bullish. What distinguishes the two is the nature of the trend that they appear in. If the umbrella line appears in an uptrend then it is known as the hanging man pattern, and if it appears in a downtrend, then it is known as the hammer pattern. Both are a single candlestick pattern in which the candlestick consists of a real body that is located at the top of the candlestick with little or no upper shadow and a relatively long lower shadow, which should be at least twice the length of the real body. The color of the hanging man or hammer candlestick is not important.
The Hanging Man
The hanging man is a bearish signal that appears in an uptrend and warns of a potential trend reversal. The candlestick pattern is called the hanging man because the candlestick resembles a hanging man with dangling legs. The long lower shadow of the hanging man is generally a bullish signal, indicating that demand for the underlying security forced the price into the upper third of the price range for that period. For this reason, confirmation of a trend reversal is should be sought. At the very least, the candlestick following the hanging man should close below the real body of the hanging man. Confirmation may also take the form of another trend reversal pattern such as an engulfing pattern or a piercing pattern. The color of the hanging man on its own is not important though the nature of the confirmation pattern may assign significant to the color of the hanging man candlestick.
The Japanese name for the hammer pattern is takuri, which means testing the water for its depth. The hammer pattern is quite similar in appearance to the hanging man pattern but it occurs in a downtrend and is a bullish signal that warns of a possible trend reversal. The candlestick is called a hammer because it hammers out a base 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. 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.
The dark-cloud cover pattern is the opposite of the piercing pattern and appears at the end of an uptrend. It is a dual candlestick pattern with the first candlestick being light in color and having a large real body. The second candlestick must be dark in color, must open higher than the high of the first candlestick and must close down, well into the real body of the first candlestick. The deeper the second candlestick penetrates the first, the more reliable the pattern becomes.
The dark-cloud cover pattern is also more reliable when it appear at or near a resistance line ...
The Engulfing pattern is a reversal candlestick pattern that can appear at the end of an uptrend or at the end of a downtrend. The first candlestick in this pattern is characterized by a small body and is followed by a larger candlestick whose body completely engulfs the previous candlestick's body.
The colors of the candlesticks that make up the engulfing pattern are important. When the engulfing pattern appears at the end an uptrend, it is a bearish reversal signal and indicates a weakness in the uptrend and ...
Three Black Crows
The Three Black Crows pattern is the bearish counterpart of the Three Advancing White Soldiers pattern. It is a reversal pattern that consists of three bearish candlesticks that should come into consideration when it appears within an established uptrend, where it indicates a weakness in the uptrend and, potentially, the beginning of a down trend.
Each of the three candlesticks in the Three Black Crows pattern should be relatively long bearish candlesticks with little or no lower shadows. Each of the candlesticks in this pattern should mark a steady decline in ...
The Evening Doji Star
Star patterns are trend reversal patterns that consist of three candlesticks, with the middle candles stick forming the star. A star is a candlestick with a short real body, like a doji or a spinning top, that gaps away from the real body of the preceding candlestick. There are three basic star patterns: the morning star, which appears in a downtrend; and the evening star and the shooting star, which appear in an uptrend.
The morning star and the evening star have a doji or a spinning top as the second candle...
Continuation patterns indicate that there is a greater probability of the continuation of a trend than a trend reversal.. These patterns are generally formed when the price action enters a consolidation phase during a pre-existing trend. During the consolidation phase, the trend appears to change; however, the continuation of the preceding trend is more probable.
Some of the common continuation patterns include the cup and handle pattern, flags and pennants, symmetrical triangles, ascending triangle and desc...
Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position. Generally, trend reversal patterns indicate that a support level in a downtrend or a resistance level in an uptrend will hold and that the pre-existing trend will start to reverse. These patterns allow you to enter early in the establishment of the new trend and are usually result in very profitable trades.
The common reversal patterns include the double tops and double bottoms, triple tops and triple bottoms, broadening tops and broadening bottoms, ...