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A warning sign at the top of uptrends - identical in shape to the hammer, but with opposite implications when appearing after a rally.
The Hanging Man is a single-candle bearish reversal pattern that forms at the top of an uptrend. It has the same shape as a Hammer â small body at the top, long lower shadow â but its location after an uptrend gives it the opposite meaning.
The long lower shadow shows that during the session, sellers pushed price significantly lower. Although buyers recovered the price by the close, the fact that sellers were able to drive it down so far at the top of an uptrend is a warning sign. The pattern 'hangs' from the uptrend like a man from a gallows â a bearish omen.
The Hanging Man reveals cracks in bullish confidence. During an uptrend, everyone expects higher prices. But during this session, sellers appeared and pushed price significantly lower - the long shadow is the evidence.
Yes, buyers managed to push price back up by the close. But the fact that sellers could achieve such a deep intraday decline at all suggests the balance of power may be shifting. It's like cracks appearing in a dam - the structure held this time, but weakness is showing.
The key question is: *what happens next?* If the following candle confirms weakness by closing below the Hanging Man, the early sellers were right. If price rallies higher, the warning was a false alarm and the uptrend continues.
Conservative: Enter short only after bearish confirmation - wait for next candle to close below the Hanging Man's low.
Aggressive: Enter short at the close of the Hanging Man if at strong resistance with other bearish signals.
Place stop above the high of the Hanging Man (or above the confirmation candle's high for conservative entries). If price exceeds this level, the warning was false.
T1: Previous swing low or nearest support level. T2: Measured move equal to the recent rally being reversed. T3: Use trailing stop on 50% position for extended moves.
Minimum 1:2 R:R required. Confirmation entry often provides better R:R despite later entry.
A hanging man is only as good as the context it appears in. The same candle shape can be a legitimate warning or noise - the difference is where it forms and what surrounds it.
Location is everything. A hanging man only matters at the top of an uptrend - the same pattern mid-trend is meaningless noise.
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