The Hanging Man:
The Hanging man is bearish candlestick pattern that forms at the end of an uptrend. It is created when there is a significant sell off near the market highs, but buyers are able to push the currency pair back up so that it closes at or near the opening price. Generally the large sell-off is seen as an early indication that the bulls (buyers) are losing control.
As mentioned, this formation is bearish if they occur after a significant up- rend but this pattern occurs after a significant downtrend it is called a Hammer. They are identified by small red bodies (small range between opening and closing prices) and a long lower shadow (the low was significantly lower than the open, high and close)
The Hanging man has little to no higher shadow/ wick and has a lower shadow / wick which is at least two times as long as the body of the candle. Unlike the hammer, the lower shadow / wick which constructs the bottom half of the candle indicates selling pressure. An excellent price action trade setup is when the formation is established at a point of resistance.
Step 1 is simply highlighting the hanging man candlestick formation with the rectangle tool ensuring the highest degree of accuracy at the top wick and bottom wick, extending the box over to the right hand side (allowing price to play out). This becomes the setup chart and you will then have to (view image below).
Once the candlestick has been highlighted we then step down to the adequate timeframe (listed above). In this example the hanging man was spotted on the weekly chart so we then step down to the Daily timeframe in order to follow the execution rules (as displayed below) We now have a refined viewpoint of the price action and rather than entering a 50-50 sell trade right after the hanging man has formed, we can simply wait for the M.A crossover and a clear candlestick break below the range. In doing this we have simply awaited a clear sign of a reversal in momentum, the resistance has held firm and the trend is reversing to the downsid