Type of Candlestick Patter Part- 5

The Hammer and Hanging Man are each made of single candlestick
lines (Figure 3-1 and 3-2). They have long lower shadows and small
real bodies that are at or very near the top of their daily trading
range. These were first introduced as paper umbrellas .
They are also special versions of the Tonbo/Takuri lines.
The Hammer occurs in a downtrend and is so named because it is
hammering out a bottom. The Japanese word for Hammer (tonkachi)
also means the ground or soil.
A Hanging Man occurs at the top of a trend or during an uptrend.
The name Hanging Man (kubitsuri) comes from the fact that this
candle line looks somewhat like a man hanging.
Another candle line similar to the Hammer is the Takuri (pronounced
taguri) line. This Japanese word equates with climbing a rope
or hauling up. The motion is not smooth and could be related to pulling
up an anchor with your hands: as you change hands; the upward movement
is interrupted momentarily. A Takuri line has a lower shadow at
least three times the length of the body, whereas the lower shadow of a
Hammer is a minimum of only twice the length of the body.
Rules of Recognition
1. The small real body is at the upper end of the trading range.
2. The color of the body is not important.

3. The long lower shadow should be much longer than the
length of the real body, usually two or three times.
4. There should be no upper shadow, or if there is, it should
be very small.



Scenarios and Psychology behind the Pattern
The market has been in a downtrend, so there is an air of bearishness.
The market opens and then sells off sharply. However, the sell-off is
abated and the market returns to, or near, its high for the day. The
failure of the market to continue the selling reduces the bearish sentiment,
and most traders will be uneasy with any bearish positions
they might have. If the close is above the open, causing a white body,
the situation is even better for the bulls. Confirmation would be a
higher open with yet a still higher close on the next trading day.
Hanging Man
For the Hanging Man, the market is considered bullish because of the
uptrend. In order for the Hanging Man to appear, the price action for
the day must trade much lower than where it opened, then rally to
close near the high. This is what causes the long lower shadow, which
shows how the market just might begin a sell-off. If the market opens
lower the next day, there would be many participants with long positions
that would want to look for an opportunity to sell. Steve Nison
claims that a confirmation that the Hanging Man is bearish might be
that the body is black and the next day opens lower.
Pattern Flexibility
Features that will enhance the signal of a Hammer or Hanging Man
pattern are an extra long lower shadow, no upper shadow, very small real body (almost Doji), the preceding sharp trend, and a body color
that reflects the opposite sentiment (previous trend). This trait, when
used on the Hammer, will change its name to a Takuri line. Takuri
lines are generally more bullish than Hammers.
The body color of the Hanging Man and the Hammer can add to
the significance of the pattern’s predictive ability. A Hanging Man
with a black body is more bearish than one with a white body. Likewise,
a Hammer with a white body would be more bullish than one
with a black body.
As with most single candlestick patterns like the Hammer and the
Hanging Man, it is important to wait for confirmation. This confirmation
may merely be the action on the open of the next day. Many
times, though, it is best to wait for a confirming close on the following
day. That is, if a Hammer is shown, the following day should
close even higher before bullish positions are taken.
The lower shadow should be, at a minimum, twice as long as the
body, but not more than three times. The upper shadow should be no
more than 5 to 10 percent of the high-low range. The low of the body
should be below the trend for a Hammer and above the trend for a
Hanging Man.
Pattern Breakdown
The Hammer and the Hanging Man patterns, being single candle
lines, cannot be reduced further.
Related Patterns
The Hammer and Hanging Man are special cases of the Dragonfly
Doji discussed in Above. In most instances, the Dragonfly Doji
would be more bearish than the Hanging Man.


Hanging Man Candlestick



Hammer Candlestick


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