In the above shown chart which represents the price movement of the company ‘Mahindra and Mahindra Ltd’, the concept of Hanging Man is applied during the month of August 2015. In the above analysis it can be concluded that the theory holds good only if it satisfies the following conditions :
1. The Hanging man upper tail should be minimum two times of it’s body size.
2. The Hanging man should be red in colour.
3. The lower tail should be invisible or very small in size.
4. The volume of stocks traded during the Hanging Man day should be high.
Thus, in line with the above said principles, it can be concluded that the shape is in the form of Hanging Man Pattern. This usually takes a week to form and is quite useful for the intraday traders. Since the outlook for the prices of the stock appear to be bearish, it is advisable for the trader to adopt a short position and sell the stock at the entry price shown in the chart, and to set the stop loss at the lower limit of the candlestick representing the Hanging Man. In this theory, the target price is calculated based on twice the amount of risk taken, and hence the target price is calculated accordingly.
