This is a bearish candlestick pattern that signals a reversal in the current uptrend. Hanging Man would be positioned in an uptrend stock chart and is characterized with a small real body (either colored or not) at the top, a longer lower wick or shadow with little or no upper wick, which would look like follows:
This pattern is considered to be formed when there is a significant sell off at the market open but buyers are able to push the prices back up at the market close above or near the open price. It is considered an early signal that the bullish trend is about to reverse. Overall, this candlestick placed in an upward stock chart serves as an early indication that buyers are losing control and bearish traders are gaining strength.
However, analysts consider this signal to be fairly weak in predicting trend reversals and would prefer to have the following confirmations:
• The lower wick/shadow should be several times as long as the body of the candle because longer the lower wick stronger the sellers have been in pushing down the price and more bearish the signal is;
• Although the color of the candle is not considered when identifying a Hanging Man, if the candle is colored (black/ blue/ red) the stronger the signal is to be considered as the traders have failed to pull up the price above the opening level. To simplify further if the Close is lower than the Open of the Hanging Man then it is considered a strong bearish signal.
Therefore if you see a Hanging Man at the top of an uptrend it is a sign of a reversal in the trend and is a SELL signal. However, as we always warn you other considerations should also be taken into account when taking the final decision.