By Dragan Lukic
One of the basic candlesticks you will study in your
Forex trading course
is the Hanging Man. Whilst we focused on its cousin (the hammer) in our last article, here we will focus on the hanging man, its characteristics and how to use it within your trading strategies you have learnt throughout your
The Hanging Man
In terms of look and feel the hanging man and the hammer are identical. The main difference is however, that the hanging man appears at the top of an up-trend rather than a down-trend. The reason why it is called a hanging man is because the candle appears to look like a person with their legs hanging beneath their body. Similarly to the hammer, it is not important what colour the the hanging man’s real body actually is. What is important is that the real body is near the sessions high. That is, the hanging man’s open or close need to be near the session’s high as long as it creates a ‘small’ real body at the top of the candle.
As you will learn in your Forex trading course, the hanging man also has to have a long lower shadow. This shadow represents the state of the market throughout the session where the bears have created a sell-off at some point but the bulls stepped in and pushed the stock further upwards. In order to qualify as a hanging man, the stock either closes slightly below the open or slightly above the open. If a long upper shadow appears, the candle is not a hanging man.
Throughout your Forex training you will adopt your own techniques but the basic rule when using the hanging man in your Forex trading strategy is to wait for a confirmation candle. Different Forex traders have different opinions about the type of confirmation that you should look for but we are going to stick to the basic rule of a confirmation candle that closes beneath the hanging man’s real body. However, do not dismiss that some Forex traders are taught throughout their Forex training to only use a candle that opens and closes below the hanging man’s real body. The point is that, just because you see a hanging man at the top of the up-trend does not mean that the trend will change direction. As we mentioned in our prior article (Forex Trading Lesson 1 – Basics of the Hammer) the trend can simply have a rest for a few sessions and once it builds up the energy, continue trending in the same direction. If you find yourself in this position, you must take yourself out of the Forex market straight away. If you don’t you will lose money. This is why a confirmation candle is of up-most importance.
Imagine if you were following the trend and bought the currency pair on the hanging man’s open or the close. You are literally left there hanging in the Forex market. The trick is to make sure the hanging man is at the trend’s high or even at an all-time high and once the confirmation candle comes into play, the Forex market has every chance of changing direction. To give you more of a clue the market may also provide prior few candles with long upper shadows. That means that the selling pressure has begun and bulls are starting to get nervous. At the same time, try and notice if the slope of an up-trend is decreasing. If it is, the up-trend is starting to stall and the bears are starting to acquire the control. How long for, will depend on the surrounding factors but once a hanging man and a confirmation candle appear in this type of scenario, it is certainly a trade to take notice of.
About the Author: Forex Training Worldwide train people around the world how to trade the Forex through our online
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