Detailed Explanation of Hammer and Hanging Man Candlesticks

When reversal signals point in the same direction as the market's main trend, so-called hammers and hanging man lines appear. So what exactly are the hammer and hanging man? Let’s take a look.

Morphological characteristics:

1. The highest price and closing price of the real body are both at the top of the candle body. The opening price is not far below the highest price. The lower shadow is obviously too long. The color of the real body (red, green) does not matter.

2. The hammer line and hanging man line should not have upper shadow lines, but they are allowed to have them. They must be very short. It is generally believed that the lower shadow line should be 2-4 times of the real body.

3. For both, the longer the lower shadow, the shorter the upper shadow, and the smaller the entity, the more effective this type of candle line is.

Principle of form:

Hammer line: After the market has been short for a period of time, the price continues to fall, the seller's power gradually depletes, and the buyer's power slowly accumulates. On a certain trading day, the price drops sharply, but at the bottom, there is a strong desire to absorb, and buyers vigorously push the price up until it reaches the highest closing price of the day or closes close to the highest closing price. The hammer line is generally in a downward trend, indicating that the market may have bottomed out. If the closing price of the day is higher than the opening price (red hammer line), it is a good sign for the buyer.

Hanging man: After the market repeatedly went long, the power of buyers and sellers reached a balance. In one trading day, many parties worked hard to push the price up. After reaching a new high of the day, they had no intention of maintaining the high price. The price fell sharply, and the seller's power was unstoppable. The suppressed energy of the seller for many days was instantly released, and the price fell sharply. However, the closing price of the day was still at a high position, close to the highest price, and the real part was quite small. Hanging lines are generally in rising markets, indicating that the market may have reached a peak, and the negative line is more effective than the positive line.

Trading strategy:

1. First of all, you should judge whether it is reliable and whether it is a reversal pattern. It can be analyzed based on the above morphological characteristics, and it is also necessary to observe whether the trend will cooperate with the reversal on the second day. Do not blindly enter a heavy position. You can build a light position (such as 1/10 position or smaller, etc.) on the same day to test, and be careful to set a good stop loss position.

2. To establish the bearish signal of the hanging man, one should also be careful to see whether it is at the top of the market or a relay indicator. The larger the downward gap between the hanging man's real body and the next day's opening price, the greater the likelihood of a market top.

3. After the top and bottom are formed, there may be a retracement in the market outlook, that is, the price once again tests the bottom of the hammer line. As long as it does not break the lowest level, the bottom pattern of the hammer line is still valid.