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Questions and Answers
What is the primary difference between a Hammer and a Hanging Man candlestick pattern?
What is the minimum required length of the lower shadow in relation to the body for a Hammer candlestick pattern?
When trading a Hammer pattern, what is a recommended stop-loss placement?
What is the primary purpose of using a trailing stop when trading a Hammer or Hanging Man pattern?
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What is a confirmation requirement for a Hanging Man pattern?
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What is the recommended entry strategy when trading a Hammer pattern?
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What is a characteristic of a Hanging Man candlestick pattern?
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What is a risk management technique used when trading a Hammer or Hanging Man pattern?
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What is a recommended trade entry strategy when trading a Hanging Man pattern?
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What is a confirmation requirement for a Hammer pattern?
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Study Notes
Hammer and Hanging Man Candlestick Patterns
Bullish vs Bearish Signals
- Hammer: A bullish reversal pattern that forms during a downtrend, indicating a potential bottom.
- Hanging Man: A bearish reversal pattern that forms during an uptrend, indicating a potential top.
Formation Rules
-
Hammer:
- Formed during a downtrend
- Small body at the top of the candle
- Long lower shadow (at least 2 times the size of the body)
- No upper shadow or a very small one
-
Hanging Man:
- Formed during an uptrend
- Small body at the top of the candle
- Long lower shadow (at least 2 times the size of the body)
- No upper shadow or a very small one
Trade Entry Strategies
-
Hammer:
- Buy when the next candle opens above the hammer's high
- Buy when the price breaks above the hammer's high
- Consider using a stop-loss below the hammer's low
-
Hanging Man:
- Sell when the next candle opens below the hanging man's low
- Sell when the price breaks below the hanging man's low
- Consider using a stop-loss above the hanging man's high
Risk Management Techniques
- Stop-Loss: Set a stop-loss below the hammer's low (for long trades) or above the hanging man's high (for short trades)
- Position Sizing: Adjust position size based on risk tolerance and market volatility
- Trailing Stops: Use trailing stops to lock in profits as the trade moves in your favor
Confirmation Requirements
-
Hammer:
- Confirmation can come from a subsequent candle's close above the hammer's high
- Confirmation can also come from a break above a resistance level or a trend line
-
Hanging Man:
- Confirmation can come from a subsequent candle's close below the hanging man's low
- Confirmation can also come from a break below a support level or a trend line
Hammer and Hanging Man Candlestick Patterns
Characteristics
- Hammer: forms during a downtrend, indicating a potential bottom
- Hanging Man: forms during an uptrend, indicating a potential top
Formation Rules
- Hammer:
- Formed during a downtrend
- Small body at the top of the candle
- Long lower shadow (at least 2 times the size of the body)
- No upper shadow or a very small one
- Hanging Man:
- Formed during an uptrend
- Small body at the top of the candle
- Long lower shadow (at least 2 times the size of the body)
- No upper shadow or a very small one
Trade Entry Strategies
- Hammer:
- Buy when the next candle opens above the hammer's high
- Buy when the price breaks above the hammer's high
- Consider using a stop-loss below the hammer's low
- Hanging Man:
- Sell when the next candle opens below the hanging man's low
- Sell when the price breaks below the hanging man's low
- Consider using a stop-loss above the hanging man's high
Risk Management Techniques
- Stop-Loss: set below the hammer's low (for long trades) or above the hanging man's high (for short trades)
- Position Sizing: adjust based on risk tolerance and market volatility
- Trailing Stops: use to lock in profits as the trade moves in your favor
Confirmation Requirements
- Hammer:
- Confirmation comes from a subsequent candle's close above the hammer's high
- Confirmation comes from a break above a resistance level or a trend line
- Hanging Man:
- Confirmation comes from a subsequent candle's close below the hanging man's low
- Confirmation comes from a break below a support level or a trend line
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Description
Learn about the Hammer and Hanging Man candlestick patterns, their formation rules, and how to identify them in a market trend. Understand the bullish and bearish signals they provide.
