We should keep an eye out for this Candlestick after a long UPTREND because quite often it’s a reversal signal A Hanging Man looks exactly like the Hammer but it’s at the top of a trend and is very Bearish. The Japanese say that the Bulls hung themselves.

The reason it's Bearish is that the price gapped up (often above prior resistance) but the Bulls lost control and could not take it any higher. Ideally, it would not have any upper shadow (envision an old bald guy like me with no hair on top).

It's even more Bearish the next day if it closes lower than the low of the Hanging Man. A Window appearing here is really a strong Bearish signal. Even a Gap down the next day is a signal that the Bears are now in charge.

Like the Shooting Star, it needs a long shadow that is two or three times longer than the body. It’s an important reversal Candle to be on the lookout for.

The Hammer Candle can be valid even if it comes after a short-term decline while the Hanging Man should come after a large rally, hopefully at the top of a trend. While the Hammer does not need confirmation the Hanging Man should always wait for confirmation. (guess they just want to make sure the man is actually dead!) It’s best to wait for a close BELOW the low of the hanging man to be counted as confirmation.

I would like to have seen a longer lower shadow on the chart below but it still works. It's not a shaven head candle since it has a tick or so above the high of the candle.

Click to Enlarge the Chart

The chart below would have been better to have the Hanging Man at the top of the trend but sometimes you can see them near the top of a lower high. Just be more careful because they are not as strong.