The Hanging Man is a bearish reversal candlestick pattern that appears at the top of an uptrend. Despite its bullish-looking structure (it looks just like a Hammer), its location after a rally makes it a warning sign that buyers may be losing control. Understanding when and how to trade the Hanging Man can help you protect profits and identify potential shorting opportunities.
What is a Hanging Man Candlestick?
The Hanging Man is a single candlestick pattern that forms at the top of an uptrend. It has a small body at the top of the candle with a long lower shadow (at least twice the length of the body) and little to no upper shadow. The pattern gets its name from its appearance, which resembles a person hanging.
Visual Description: Picture a small square or rectangle (the body) at the top, with a long vertical line extending downward (the lower shadow). It looks identical to a Hammer, but appears in a completely different context - at the top of an uptrend rather than the bottom of a downtrend.
Hanging Man vs. Hammer: Location Matters
The Hanging Man and Hammer are visually identical patterns with opposite meanings:
- Hammer: Appears after a downtrend = bullish reversal signal
- Hanging Man: Appears after an uptrend = bearish reversal warning
Context is everything in candlestick analysis. The same shape means different things depending on where it appears in the trend.
Hanging Man Formation Criteria
For a candlestick to qualify as a valid Hanging Man, it must meet these criteria:
- Location: Must appear after an uptrend or significant rally
- Lower shadow: At least 2x the length of the body (ideally 2.5-3x)
- Upper shadow: Very small or nonexistent
- Body position: Located in the upper portion of the trading range
- Body color: Can be bullish (green) or bearish (red); red is considered slightly more bearish
Psychology Behind the Hanging Man
Understanding the market psychology reveals why this bullish-looking candle is actually bearish:
- Opening: After an uptrend, the session opens at or near the highs
- Decline: During the session, sellers push price significantly lower - a warning sign at these elevated levels
- Recovery: Buyers step in and push price back up near the open
- Close: Price closes near where it opened
The key insight: despite the recovery, the fact that sellers were able to push price down so far suggests underlying weakness. The long lower shadow represents profit-taking or early selling pressure that may continue.
Hanging Man Example
Stock XYZ has rallied from $40 to $60 over two weeks.
Today: Opens at $60, drops to $55 mid-session, then recovers to close at $59.50.
Result: A small body near the top with a long lower shadow - a Hanging Man.
The 5-dollar decline mid-session, despite the recovery, shows selling pressure is emerging.
How to Trade the Hanging Man
The Hanging Man is a warning signal, not a confirmed reversal. Always wait for confirmation before acting.
Confirmation Requirements
- A bearish candle the next day that closes below the Hanging Man's body
- A gap down opening the following session
- Break below the Hanging Man's low
Trading Example: Short Entry
Stock ABC has rallied from $80 to $100. A Hanging Man forms at $100 with a low of $95.
Next day: Opens at $99, closes at $96 (bearish confirmation candle).
Entry: Short at $95.50 (below confirmation candle's close or Hanging Man's low)
Stop loss: $101 (above the Hanging Man's high)
Target: $90 (previous resistance turned support)
Using Hanging Man for Long Position Management
Even if you do not short, the Hanging Man helps manage existing long positions:
- Tighten stop losses when a Hanging Man appears
- Take partial profits to lock in gains
- Move stops to breakeven or just below the Hanging Man's low
- Avoid adding to long positions until pattern resolves
Factors That Increase Reliability
Resistance Levels
A Hanging Man at a key resistance level is more significant:
- Previous swing highs
- Round psychological numbers ($50, $100)
- All-time highs
- Moving average resistance
Volume Analysis
- High volume on the Hanging Man increases reliability
- Volume spike suggests significant selling pressure during the session
- Higher volume on the confirmation candle adds conviction
Overbought Conditions
- RSI above 70 when Hanging Man forms
- Price extended far above moving averages
- Multiple overbought indicators align = stronger warning
Shadow Length
- Longer lower shadow = more significant selling pressure
- Shadow 3x the body is more reliable than 2x
- Very long shadows show aggressive selling during session
High-Probability Hanging Man Setup
Stock DEF rallies from $60 to $85 (42% gain). At $85:
Price hits previous all-time high resistance
RSI reaches 75 (overbought)
Hanging Man forms with shadow 3x the body
Volume is 60% above average
Next day opens lower and closes below Hanging Man's body
This confluence creates a high-probability bearish setup.
Red vs. Green Hanging Man
The body color adds nuance to the pattern:
Red (Bearish) Hanging Man
- Close is below the open
- Considered slightly more bearish
- Shows sellers pushed price down and it stayed down
Green (Bullish) Hanging Man
- Close is above the open
- Still a warning signal at uptrend tops
- The location (after uptrend) overrides the body color
Hanging Man Pattern Statistics
Historical studies show these approximate outcomes:
- Hanging Man with confirmation: 55-60% bearish reversal rate
- At resistance with volume: 60-65% success rate
- Without confirmation: 40-45% reversal rate
The Hanging Man is considered a weaker reversal signal compared to patterns like Evening Star or Bearish Engulfing. Confirmation is essential.
Common Mistakes to Avoid
- Trading without confirmation: The Hanging Man alone has a low success rate; always wait for follow-through
- Wrong location: A Hanging Man in a downtrend or sideways market is just a Hammer or meaningless
- Ignoring trend strength: Strong uptrends often produce multiple Hanging Men before actually reversing
- Tight stops: Placing stops just above the body instead of above the high
- Shorting aggressively: The pattern is a warning, not a confirmed reversal
Hanging Man vs. Similar Patterns
Hanging Man vs. Shooting Star
Both appear at uptrend tops, but have opposite structures:
- Hanging Man: Long lower shadow, small/no upper shadow
- Shooting Star: Long upper shadow, small/no lower shadow
Both are bearish warnings at tops, but the Shooting Star is generally considered more reliable.
Hanging Man vs. Dragonfly Doji
The Dragonfly Doji has virtually no body (open equals close), while the Hanging Man has a small but visible body. At uptrend tops, both are bearish warnings.
Multiple Hanging Men
Sometimes you will see several Hanging Men form during a rally:
- First Hanging Man: Early warning, often ignored by strong trends
- Second Hanging Man: Confirms selling pressure is real
- Third Hanging Man: Trend likely exhausted, reversal more probable
Each successive Hanging Man at similar levels increases the probability of reversal.
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Summary
The Hanging Man is a bearish warning candlestick that appears at the top of uptrends. Despite looking like the bullish Hammer pattern, its location after a rally gives it the opposite meaning. The long lower shadow shows that significant selling occurred during the session, even though buyers recovered the price by the close. Always wait for confirmation (bearish candle the next day) before acting on this pattern. The Hanging Man is most reliable when it appears at resistance levels with high volume and overbought indicators. Use it primarily as a signal to tighten stops and take profits on long positions rather than as an aggressive shorting signal.
Learn more: Hammer candlestick and Shooting Star pattern.