1. The real body is at the upper end of the trading range. The color of
the real body is not important
2. A long lower shadow should be twice the height of the real body
3. It should have no, or a very short, upper shadow.
3. It should have no, or a very short, upper shadow.
The longer the lower shadow, the shorter the upper shadow and the
smaller the real body the more meaningful the bullish hammer or bearish
hanging man. Although the real body of the hammer or hanging
man can be white or black, it is slightly more bullish if the real body of
the hammer is white, and slightly more bearish if the real body of the
hanging man is black. If a hammer has a white real body it means the
market sold off sharply during the session and then bounced back to
close at, or near, the session's high. This could have bullish ramifications.
If a hanging man has a black real body, it shows that the close
could not get back to the opening price level. This could have potentially
bearish implications.
It is especially important that you wait for bearish confirmation with the hanging man. The logic for this has to do with how the hanging-man
line is generated. Usually in this kind of scenario the market is full of
bullish energy. Then the hanging man appears. On the hanging-man
day, the market opens at or near the highs, then sharply sells off, and
then rallies to close at or near the highs. This might not be the type of
price action that would let you think the hanging man could be a top
reversal. But this type of price action now shows once the market starts
to sell off, it has become vulnerable to a fast break. READ MORE
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