The king of all candlestick patterns, the hammer pattern is a bullish reversal pattern but how is it different from its sibling hanging man? In this article, we will be considering a few differences between hammer and hanging man and what traders must consider while trading these patterns.
Now, candlestick patterns such as hammer and hanging man can be best friends to any trader who wants to earn consistent profit in the stock market but with so many similarities in how to understand the signal.
Let’s understand these patterns individually and compare their roles in trading.
What is Hammer Candlestick Pattern?
A hammer candlestick is a small-bodied candlestick that forms when the price in a downtrend market dips significantly lower than the opening price but manages to rise back up before the market closes.
In other words, although the market was pushed down by the pressure from the sellers, the buyers put up a brave fight and in the end managed to push the price back up.
However, the sellers pushed down the market which resulted in the closing of shares near the opening value.
Now, the occurrence of such a pattern near support gives a signal of bullish reversal and brings in an opportunity for a profitable long position.
But how do you differentiate a hammer candlestick from others? Now, the color of the candle could be either green or red but what differentiates it from the rest is the long lower wick, which indicates strong selling pressure in the downtrend.
However, at the same time, the small body of the candlestick gives a signal of the buyers’ gaining strength.
In order to trade using a hammer candlestick pattern, you should wait for another candlestick to form so that it can confirm the signal by breaking the high of the hammer candlestick formed.
What is the Hanging Man Pattern?
Now that you know what is a hammer candlestick, let’s see what is a hanging man candlestick.
While the hammer candlestick pattern predicts an upcoming trading opportunity, on the other hand, the hanging man pattern warns of an impending plunge in the prices of the security in the near future.
The hanging candlestick pattern is a candlestick pattern that occurs when the price of a security drops significantly in an uptrend market and fails to recover even to its opening level.
This means that the market closes below the opening price and this is a clear indication that the market is about to enter a downtrend trend.
This can be both a warning as well as a trading opportunity for traders. However, the pattern can be confirmed only when the next candle forms that closes below the low of the candle.
As for the color, the hanging man candle can be both red or green in color but is mostly found to be red.
Hammer Vs Hanging Man
Now that we’ve seen what a hammer and hanging man candlestick is, let’s see the difference between a hammer and hanging man candlestick pattern.
Hammer vs Hanging Man Basis Hammer Hanging Man Location on the chart The Hammer candlestick pattern forms on the Support level. Hanging man forms on Resistance level Significance Formed when a bullish reversal is being anticipated in the market. Formed when a bearish reversal is about to happen. Colour of the Candlestick Can be red or green Can be red or green When to trade High break Low break Stop Loss Set on the low of the candle Set on the high of the candle Market situation Downtrend market Uptrend market Long position/Short Position Long position can be taken at after the confirmation candle that breaks the high Short position can be taken after confirmation candle that breaks the low
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Conclusion
Now that we’ve seen what is the difference between hammer and hanging man patterns, we know that both of these patterns can prove to be powerful tools for a trader looking to earn a profit.
Although they might appear to be similar at first glance, the hammer and hanging man candlestick are quite the opposite since one indicates a bullish reversal and the other shows that a downtrend is on the verge of happening in the market.
Now trading these patterns is not as easy as it seems to be.
You need to learn candlestick patterns in detail and use the right approach and strategy to maximize your profit.
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