The Hanging Man is a bearish candle signal. It indicates that the prior uptrend may reverse to a downtrend or move sideways. The name "Hanging Man" is used because it has a gloomy connotation, and also because the candlestick that defines this pattern looks like a hanging man with dangling legs. The Hanging Man pattern is shaped by a small Real Body near the top of the price range. The Real Body can be black or white, although a black candlestick is preferable. A black candlestick is slightly more bearish since it shows that the close could not get back up to the opening price level.
The Hanging Man has a long lower shadow that should be at least twice the length of the Real Body. The upper shadow should be very small or non-existant.
A Hanging Man can be confirmed by a bearish gap between the Real Body of the Hanging Man and the open on the next session. In other words, the investor should look for the next session opening lower than the Real Body of the Hanging Man. The greater the gap, the stronger the signal. A Hanging Man may be a stronger signal if it is followed by another, well-formed Hanging Man in the next session. The longer the Lower Shadow of the Hanging Man the greater the significance of the pattern. The smaller the Real Body and the Upper Shadow the more significant the pattern. A Hanging Man with a white Real Body (where the close is higher than the open) may indicate weakness in the pattern.
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