Most merchants will agree that there are few issues extra pleasant than driving a gradual up pattern all the best way to the highest. Sadly, because the outdated adage goes, “all good issues should come to an finish”. That is notably true in buying and selling which is why it’s important to know when a transfer to the draw back is prone to emerge and how one can handle your danger accordingly. On this article, we’ll share with you what the hanging man candlestick reversal sample is and how one can commerce it.
WHAT IS THE HANGING MAN?
A dangling man candle (aptly named) is a candlestick formation that reveals a pointy improve in promoting stress on the top of an present uptrend. That is typically caused by many market contributors believing the market has reached its highest degree ensuing within the ‘bears’ outweighing the ‘bulls’. This may be noticed within the GBPUSD chart under the place it’s clear to see the crimson candle showing on the prime of the upward pattern because of mass promoting stress.
GBP/USD HANGING MAN CANDLESTICK
CHARACTERISTICS OF THE HANGING MAN CANDLE
The hanging man candle is characterised by having a small actual physique, little or no higher shadow (wick) and a decrease shadow no less than twice the size of the physique.
- Upward pattern: The hanging man can solely be recognized as such as soon as it has shaped on the prime of an uptrend.
- Opening degree: The hanging man candle can both be a inexperienced candle (bullish), or a crimson candle (bearish) though, the bearish candle gives a greater indication of a weakening market.
- Higher shadow: A small higher shadow signifies that there was an try to take care of the present uptrend earlier than the numerous drop within the worth of the Pound Sterling.
- Lengthy decrease shadow: That is in all probability some of the insightful observations on the candle, depicting a big unload earlier than the bulls tried to regains some floor forcing the closing worth to finish up considerably nearer to opening ranges however nonetheless down for the interval.
- Closing degree: On this case the closing degree was under the opening degree and subsequently, confirms that this can be a bearish hanging man candle.
IDENTIFYING HANGING MAN CANDLESTICK TRADING SIGNALS
The hanging man candlestick can be utilized to determine a brief commerce (bearish view of the market) because the lengthy shadow signifies huge promoting. The true take a look at of the legitimacy of the hanging man candlestick is commonly revealed in subsequent exercise on the chart. If the next candle strikes additional down and breaks under the brief time period upward pattern line, this may be seen as a continuation of the downward long run pattern. One other attainable entry degree may very well be to enter the commerce as soon as the market has moved previous the low of the hanging man candle.
TRADING THE HANGING MAN?
You will need to view the hanging man candle formation in relation to the long run pattern. One of the best ways to do that is to utilize a number of timeframe evaluation. Begin off by viewing the market utilizing an extended timeframe chart just like the every day or weekly timeframe to watch the path the market is tending to in the long run. Then, zoom-in utilizing a smaller timeframe chart (4 hour or 2 hour) to investigate the perfect entry level to your commerce.
Step 1: Determine the long run pattern
View the chart on an extended timeframe (maybe a every day chart) to get an concept of the path the market is heading. You don’t want to position a commerce in the other way of the long run pattern.
Step 2: Recognizing your superb entry level
Making use of a shorter timeframe chart (4 hour chart), determine the perfect entry level. The hanging man candle formation gives us with a sign for a brief commerce.
Step 3: Make use of supporting indicators
Does the Relative Energy Index affirm that the market has turned and now in a downward pattern? Has the 20 SMA line crossed over the 50 SMA line? Does the hanging man candlestick seem close to the highest of the brief time period uptrend? Is a related Fibonacci retracement degree close by?
Step 4: Place your commerce
Search for an entry level on the low of the hanging man candlestick. In case your bearish view of the market is appropriate, you will note subsequent worth motion transferring down – offering you with a sign to position your brief commerce.
Step 5: When to shut out of the commerce?
Every time coming into a commerce it’s all the time finest to have no less than a 1:2 Threat-to-Reward ratio. You’re risking half of what you plan to realize. Which means the space out of your entry degree to your take revenue degree must be twice the space out of your entry degree to your cease loss degree.
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