The Hanging man, Hammer and the Inverted Hammer patterns

The Hanging Man described in the figure is a single candle pattern.  The identification of this pattern is fairly easy. It has a small body a long lower shadow. The shadow should be around twice the length of the body. The name Hanging man has been assigned because it resembles a head and long feet hanging from it. The formation of this pattern normally happens in an uptrend market. The Hanging Man pattern appears when a stock opens higher than the previous day but unable to hold on and trades low, but at the end of the day the buyers manage to propel the price upwards. The color of the body can be anything. But a black candle carries more weight towards bearishness. A longer shadow too can be indicative to a bearishness. Similarly a large volume will be supportive of the signal. For trading purpose, the Hanging Man pattern needs a confirmation signal on the following day.

The Hammer pattern described in the figure is one of the easily identifiable patterns. The hammer is a single candle pattern. it has a small body and only a lower shadow. The shadow’s length is around twice that of the body of the candle. The Hammer pattern appears when a stock opens lower and sees the low of the day, but rallies back  to regain some of the losses.. The formation of this hammer pattern could be seen at the bottom of a downtrend. The long lower shadow is an indication of presence of buyers. Although the color of the body is not very important, a white body makes the pattern stronger. The hammer pattern is also seen a potential support level. The hammer is a very reliable reversal pattern.

 The inverted Hammer is also a single candle reversal pattern. This pattern could form in a downtrend and therefore is a trend reversal pattern. The price opens lower than the previous candle and sees higher trading levels. But during the day’s trade, sheds some price gains and closes nearer to the opening price. The pattern resembles a hammer in an inverted manner.This pattern needs a confirmation candle on the following day's trading.

All the above three patterns are very important reversal patterns that should be paid attention to.