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Hammer and hanging man patterns are very reliable and powerful, appears rarely and shows the reversal in trend, hence it is popular.
Hammer: It appears after significant price fall. Lower tail should be at least 2 times of the body and upper tail should be very small and body should be green with high volume.
When to Buy: Long position can be created when the price increases above the upper tail(A) and stop loss is the lowest price of hammer(B). Risk = A~B, Target: A+ (1.5 or 2 times of risk). Selling should happen when price reaches the target or at stop loss(price goes below B).
Hanging Man: It appears after significant increase in price. Upper tail should be atleast 2 times of the body and lower tail should be invisible or small. Body should be red with high volume on that day.
When to Sell: Short position can be created when the price goes below the lower tail(A) and stop loss is the highest price of the hanging man(B). Risk = A~B; Target: A+(1.5 to 2 times of risk). Buying should happen when the price reaching the target or at stop loss(price goes above B).
The hanging man and the hammer are both candlestick patterns that indicate trend reversal. The only difference between the two is the nature of the trend in which they appear. If the pattern appears in a chart with an upward trend indicating a bearish reversal, it is called the hanging man. If it appears in a downward trend indicating a bullish reversal, it is a hammer.
Any stock that moves in a particular direction has to halt and change direction at one stage, the hammer and hanging man helps in identifying the reversal movement of the stock which gives a clear buy or sell signal upon the reversal trend, thus making it a popular indicator.
When A Hammer is formed after the downtrend with significant volume, we can expect for the trend reversal and once the market opens higher than the previous close we can create a long position.
When A Hanging man is formed after the uptrend with significant volume, we can expect for the trend reversal and once the market opens lower than the previous close we can create a short position.
Hammer:
It is a reversal trend with the recent price fall. Hammer lower tail should be two times of its body size and the upper tail should be invisible.
Green in colour with a high volume indicates bullish movement.
Buy when the price exceeds the days high and stop loss below the days low.
Hanging man:
It is a reversal trend with the recent increase in price. Hanging man upper tail should be two times of its body size and the lower tail should be invisible.
Red in colour with a high volume indicates bearish movement.
Sell when the price goes below the days low and stop loss above the days high.
hammer – sign of strength, these are very reliable, powerful and appear rarely it should appear after a significant price fall, lower tail should 2 times of the body and no upper tail. body should be green in colour buy above the highest point of the hammer day. profit a+2 times of risk taken
hanging man – sign of negativity body should be red in colour upper tail should be 2 times of the real body. lower tail should be nil. sell when the price goes below the days low.
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