Identifying the Hanging Man: A Frequently Overlooked Bearish Reversal Signal

In technical analysis, the hanging man candlestick pattern is one of the most controversial reversal indicators. Many beginner traders overlook it due to a lack of understanding of the nuances of its formation and the market conditions that trigger this signal.

Visual Characteristics of the Hanging Man

The hanging man pattern is formed through a combination of specific elements in a single candlestick period. The long lower shadow(lower shadow)—at least twice the size of the body—serves as the main feature that distinguishes it from other bearish patterns. The body itself is small and located at the top of the candle, while the upper shadow is almost nonexistent or very minimal. The closing price is usually near or below the opening level.

Formation Mechanism in the Market

The hanging man appears when the market has been in an uptrend for a considerable period. The formation phase begins with an open, followed by a significant drop indicating strong selling pressure. However, buyers still have enough strength to push the price back up toward the opening level. The remaining long shadow reflects the battle between the two sides, with sellers attempting to control the downside momentum.

Why the Hanging Man Is Worth Noticing

This pattern is an important signal that buyers are starting to lose dominance. When sellers manage to create selling pressure, as indicated by the long lower shadow, it suggests a possible trend reversal. However, the hanging man is not a direct sell signal—it requires confirmation from the next candle that breaks the low level to strengthen the credibility of the signal.

Practical Application in Trading

To use the hanging man effectively, wait for a confirming candle that shows continued bearish momentum. Check whether the pattern forms near a significant resistance level—that will reinforce the validity of the signal. The stop loss is ideally placed above the highest level of the hanging man candle. Take profit can be focused on support levels below the formation, providing a balanced risk-reward ratio.

Accuracy and Effectiveness Level

Data from research shows that the hanging man has an approximately 59% success rate in predicting bearish reversals(based on studies from Vanderbilt University). This figure proves that the pattern is not a guarantee but a probability—always combine it with other indicators or support/resistance levels for more informed decision-making.

Does your experience with the hanging man align with these statistics? Share your strategies in the comments!