Short-term investors rely on volatility and overall stock trends when it comes to making money. It goes without saying that people who want to trade full time will have to learn technical analysis. Armed with this knowledge, traders will be able to execute proper trades and manipulate their positions in such a way to take advantage of short-term profit opportunities. In this regard, short-term patterns become one of the trader's most heavily used tools.
In this part of the Learn Technical Analysis Series, we study the Hanging Man. As a short-term pattern, the Hanging Man gives investors an indication as to the security's immediate price expectation, which would be downward since it is a bearish signal.
When trying to identify a Hanging Man pattern, investors need to pull up the candlestick chart for the security in question. Rookie investors who have just begun to learn technical analysis will identify this type of chart type by a day's "Real Body" which is a box made up of one horizontal line for the security's open and another horizontal line for the close, and two vertical lines that join them (or box them in). The "Shadow" is the range in which the security trades over and below the Real Body.
The Hanging Man will consist of a small "Black Body" formed by a higher open and a lower close, as well as a long "Lower Shadow" meaning the stock traded much lower than the close at some point in the day. Ideally, the Lower Shadow will be at least twice as long as the Body. If you are just starting to learn technical analysis, the Hanging Man might look like a square tadpole with a straight tail.
As noted in previous parts of this series, any technical pattern or indicator, including the Hanging Man, should never be used in isolation. Investors who properly learn technical analysis should always confirm the signals they discover.
One way to confirm the signal is on the following trading day, investors should seek a bearish gap on the open from Real Body. The farther down from the Real Body, the better. In terms of the following day's Real Body, it should be lower than the signal's Real Body, something that will not be confirmed until the close. For this reason, astute investors who learn technical analysis will rely on a multitude of other indicators when making trades based on a Hanging Man.
Some things investors should be cautious about is overall bullish market activity. Overly bullish markets often product false Hanging Man patterns, which can be confirmed when the open following the pattern is higher than the Real Body. Also, investors should not overlook the "color" of the Hanging Man's Real Body. Remember that "green and White are a Bear Trap's Delight" when it comes to the Hanging Man.
When investors learn technical analysis, they often use one pattern (such as the Hanging Man) as a starting point when it comes to discovering opportunities. Rarely will they rely on a single indicator. Using multiple indicators and analysis will result in smarter trades and a greater success ratio.
In this part of the Learn Technical Analysis Series, we study the Hanging Man. As a short-term pattern, the Hanging Man gives investors an indication as to the security's immediate price expectation, which would be downward since it is a bearish signal.
When trying to identify a Hanging Man pattern, investors need to pull up the candlestick chart for the security in question. Rookie investors who have just begun to learn technical analysis will identify this type of chart type by a day's "Real Body" which is a box made up of one horizontal line for the security's open and another horizontal line for the close, and two vertical lines that join them (or box them in). The "Shadow" is the range in which the security trades over and below the Real Body.
The Hanging Man will consist of a small "Black Body" formed by a higher open and a lower close, as well as a long "Lower Shadow" meaning the stock traded much lower than the close at some point in the day. Ideally, the Lower Shadow will be at least twice as long as the Body. If you are just starting to learn technical analysis, the Hanging Man might look like a square tadpole with a straight tail.
As noted in previous parts of this series, any technical pattern or indicator, including the Hanging Man, should never be used in isolation. Investors who properly learn technical analysis should always confirm the signals they discover.
One way to confirm the signal is on the following trading day, investors should seek a bearish gap on the open from Real Body. The farther down from the Real Body, the better. In terms of the following day's Real Body, it should be lower than the signal's Real Body, something that will not be confirmed until the close. For this reason, astute investors who learn technical analysis will rely on a multitude of other indicators when making trades based on a Hanging Man.
Some things investors should be cautious about is overall bullish market activity. Overly bullish markets often product false Hanging Man patterns, which can be confirmed when the open following the pattern is higher than the Real Body. Also, investors should not overlook the "color" of the Hanging Man's Real Body. Remember that "green and White are a Bear Trap's Delight" when it comes to the Hanging Man.
When investors learn technical analysis, they often use one pattern (such as the Hanging Man) as a starting point when it comes to discovering opportunities. Rarely will they rely on a single indicator. Using multiple indicators and analysis will result in smarter trades and a greater success ratio.
About the Author:
Chris Blanchet has more than 16 years of experience as a Financial Advisor at one of the world's largest banks by market capitalization. To learn technical analysis free visit Online Trader Today.com where Chris writes about Technical Analysis and Options trading. Chris also maintains a debt-free blog at How To Repay Debt.com
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