How to Trade the Hammer Hanging Man Candlesticks 
How to Trade the Hammer Hanging Man Candlesticks
by InformedTrades
Video Lecture 31 of 77
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Date Added: May 7, 2017

Lecture Description

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VIDEO NOTES
A lesson on how to trade the Hammer and Hanging Man Candlestick Chart Patterns for active traders and investors in the forex, futures, and stock markets.

Like the Spinning Top and Doji which we have studied in previous lessons, the Hammer candlestick pattern is made up of one candle. The candle looks like a hammer as it has a long lower wick and a short body at the top of the candlestick with little or no upper wick. In order for a candle to be a valid hammer most traders say the lower wick must be two times greater than the size of the body potion of the candle, and the body of the candle must be at the upper end of the trading range.

When you see the Hammer form in a downtrend this is a sign of a potential reversal in the market as the long lower wick represents a period of trading where the sellers were initially in control but the buyers were able to reverse that control and drive prices back up to close near the high for the day, thus the short body at the top of the candle.

After seeing this pattern form in the market most traders will wait for the next period to open higher than the close of the previous period to confirm that the buyers are actually in control.

Two additional things that traders will look for to place more significance on the pattern are a long lower wick and an increase in volume for the time period that formed the hammer.

Chart Example


The Hanging Man

Picture

The Hanging Man is basically the same thing as Hammer formation but instead of being found in a downtrend it is found in an uptrend. Like the Hammer pattern, the Hanging man has a small body near the top of the trading range, little or no upper wick, and a lower wick that is at least two times as big as the body of the candle.

Unlike the Hammer however the selling pressure that forms the lower wick in the Hanging Man is seen as a potential sign of more selling pressure to come, even though the candle closed in the upper end of its range. While the lower wick of the Hammer represents selling pressure as well, this is to be expected in a downtrend. When seen in an uptrend however selling pressure is a warning sign of potential more selling pressure to come and thus the categorization of the Hanging Man as a bearish reversal pattern.

As with the Hammer and as with most one candle patterns most traders will wait for confirmation that selling pressure has in fact taken hold by watching for a lower open on the next candle. Traders will also place additional significance on the pattern when there is an increase in volume during the period the Hanging Man forms as well as when there is a longer wick.

Chart Example



That completes our lesson for today. In our next lesson we will look at two additional reversal patterns which are known as the Inverted Hammer and The Shooting Start Candlestick Patterns so we hope to see you in that lesson.

As always if you have any questions or comments please leave them in the comments section below, and good luck with your trading!

Course Index

  1. Intro to Technical Analysis
  2. Introduction to Dow Theory
  3. Second 3 Tenets of Dow Theory
  4. How to Read Stock Charts
  5. How to Trade Support and Resistance
  6. Multi Time Frame Analysis
  7. Introduction to the Double Top and Double Bottom Charting Pattern
  8. How to Trade Double Tops Like a Pro
  9. How to Trade the Head and Shoulders Pattern Part 1
  10. How to Trade the Head and Shoulders Pattern Part 2
  11. How to Trade the Wedge Chart Pattern Like a Pro Part 1
  12. How to Trade the Wedge Chart Pattern Like a Pro Part 2
  13. How to Trade the Flag/Pennant Patterns Like a Pro Part 1
  14. How to Trade the Flag/Pennant Patterns Like a Pro Part 2
  15. How to Trade Triangle Chart Patterns Like a Pro Part 1
  16. How to Trade Triangle Chart Patterns Like a Pro Part 2
  17. Learn to Trade with Technical Indicators
  18. How to Trade Moving Averages Like a Pro (Part 1)
  19. How toTrade Moving Averages Like a Pro (Part 2)
  20. How to Trade the MACD Indicator Like a Pro (Part 1)
  21. MACD Indicator: Trade it Like a Pro (Part 2)
  22. How to Trade the Relative Strength Index (RSI) Like a Pro
  23. How to Trade Stochastics Like the Pro's Do
  24. The Difference Between the Fast, Slow and Full Stochastic
  25. How to Trade Bollinger Bands - Stocks, Futures, Forex
  26. How to Trade the Average Directional Index (ADX)
  27. How to Trade the Parabolic SAR
  28. How to Trade Candlestick Chart Formations Part 1
  29. How to Trade Spinning Tops and Doji Candlestick Patterns
  30. How to Trade the Bullish/Bearish Engulfing Candlesticks
  31. How to Trade the Hammer Hanging Man Candlesticks
  32. How to Trade the Morning/Evening Star Candlestick Pattern
  33. How to Trade the Inverted Hammer/Shooting Star Patterns
  34. Why Most Traders Lose Money and The Solution
  35. Why Traders Hold On to Losing Positions
  36. Two Trading Mistakes Which Will Destroy Your Account
  37. Herd Mentality is the Psychology That Leads to Big Trading Losses
  38. Profit Expectations: What Millionaire Traders Know
  39. How to Join the Minority of Traders Who Are Successful
  40. How To Determine Where to Put Your Initial Stop Loss Order
  41. How to Use the Average True Range (ATR) To Set Stops
  42. How to Up Your Chances for Profit When Setting Stops
  43. How to Reduce the Chances of Being Stopped Out on a Trade
  44. How Successful Traders Use Indicators to Place Stops
  45. Stop Your Mind From Causing You to Take Profits Too Soon
  46. How To Use Trailing Stops
  47. Why Position Sizing is So Important in Trading
  48. Why Fixed Position Sizing Is Not the Best Way to Trade
  49. Trading The Martingale and Anti Martingale Strategies
  50. How to Set Trade Position Size for Maximum Profits
  51. Maximize Trading Profits with Correct Position Sizing 2
  52. Fundamental Analysis and The US Economy
  53. A Simple Explanation of the US Economy for Traders
  54. Simple Explanation of The US Economy For Traders Part 2
  55. The Business Cycle and Fiscal Policy - What Traders Know
  56. How Interest Rates Move Markets
  57. What Traders Know About Interest Rates Part 2
  58. What Traders Need to Know About The Structure of The Fed
  59. How the Fed Changes Interest Rates
  60. How to Determine When the Fed is Going to Change Rates
  61. Why Markets Move Ahead of Interest Rate Announcements
  62. How to Trade the GDP Number (Part 1)
  63. The Components of the Gross Domestic Product (GDP)
  64. Intro to Trading Non Farm Payrolls (NFP's)
  65. Trading the News - Economic Numbers - Retail Sales
  66. Trading the News - Economic Numbers - ISM Manufacturing
  67. The Producer Price Index (PPI)
  68. The Consumer Price Index (CPI)
  69. Trade the News - Existing Home Sales Index
  70. How To Interpret the Consumer Confidence Index (CCI)
  71. How to Interpret the Index of Leading Economic Indicators
  72. The Advantages and Disadvantages of Day Trading
  73. The Advantages and Disadvantages of Swing Trading
  74. The Advantages and Disadvantages of Position Trading
  75. How to Keep a Trading Journal
  76. The Most Important Attributes of a Good Trading Journal
  77. The 20 Components of a Successful Trading Plan

Course Description

This is a series of 77 short video lessons meant to give traders an introduction to the basics of trading as well as the components necessary to develop a profitable trading plan.

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