Hammer and Hanging man

Reversing candles

Hammer and Hanging man

The Hammer and Hanging man are simple reversal signal of single Japanese
candlesticks chart. Exhibition 1 shows how it looks like.

Exhibit 1.0 Hammer and hanging man

The perfect hammer and hanging man can be recognized by:

1. A real body followed by a long shadow, perfectly, the shadow should be

twice the height the real body.

2. The real body is at the upper range of the trading range, i.e. the real body
is always at the upside.

3. It’s consider a hanging man if it present at the top during bullish move,
and it’s a hammer when it present at the bottom during a bearish move.

4. A good hammer and hanging man should be recognized with a good

confirmation.

A confirmation appears on the next day of the signals. For hammer, the
confirmation should be a long and full bullish candle, while for hanging man, a
full bearish candle confirms the move, note that the confirmation candles should
also accompany with volume.
The colour of the real body is not so important but, there shall be slightly bullish
if with the green real body and slightly bearish with the red real body. Typically,
the longer the tail/ shadow, the more meaningful the pattern is.

It is important to note that, with these hanging man and hammer patterns, they
may just signify the termination of the existing trend, which mean the trend may
goes side way afterward, although, it can also be a real reversing. In this case,
the trader should not be too conservative or ego to what they think the pattern
might indicate. When the pattern clearly indicates the trending direction, traders
should take their proper position based on the fact.

Let’s take some example from that,

Hammer

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Exhibit 1.1 Maybulk, Daily.

Exhibit 1.1 shows a hammer present in Maybulk chart on February until June
2010. Note that on Feb 9, a hammer with a very long shadow appears with
volume, on the hammer day, the stock sell off strongly at the beginning and then
bounced back and finally close at RM2.74 point. The exceptional high volume
signaled that the selling was complete follow by a strong buying later then. Note
that a full green real body appears the next day as a confirmation, before the
prices soar near RM3.00.
 Confirmation
Hammer

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Exhibit 1.2 Genting, Daily.

Another exhibition is from genting (exhibition 1.2), Sep 2011, a hammer

presented after a big drop follow by a doji (also a reversal signal) and a hammer.
The volume is relatively big and the next day after hammer presented, a solid
real body confirm the reversal.

Hanging man
Hanging man
Confirmation
Shooting star

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Exhibit 1.3 Malton, Daily (Hanging man)

 Hanging man

Hammer A

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Exhibit 1.4 JCY, Weekly.

Exhibition 1.3 shows hanging man on Malton daily chart, a hanging man with
short upside shadow and long tail appeared after a big rise on November , the
volume and next day’s red real body confirmed the hanging man, so as 14th and
15th December, both a shooting star (a bearish reversal pattern) and hanging
man appeared and signal the top of the uptrend.

Exhibit 1.4 is a weekly chart for JCY on 2010, you can observe how the trend is
going south with a hanging man before a red solid real body. The hammer A is
not a good hammer for its appearance inside the previous real body and the
absent of confirmation.

The Psychology behind

During a downtrend, people keep selling and the price goes lower and lower,
people who bought at any price level above the closing price are losing money,
but in a particular day, when price open lower, continues to go low, until at one
time, more people thinks that the price is low enough to buy, more buyers
comes in and push the price back to the higher level, if this happen in a single
day, a hammer candlestick is formed, the emotion slowly turn positive when
more buyers set in.
The hanging man, however, form during an uptrend, when everybody were
buying the high, suddenly there’s some pessimist that sell the price low, but not
too soon, the buyers push back the price higher. In this case, the confident of
those optimist start to weaken, causing trader start taking their profit and creates
panic downturn.

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demonstrating the chart pattern, it does not forecast or reveal the future trend, past performance is not
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