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When there is a downtrend and suddenly a green candle with a long bottom wick which is 2 times the size of the body and top wick hardly visible indicates trend reversal and this is called hammer and once next day price crosses the hammer then a strong buy signal is given and high of hammer is point A and lowest point of the wick is the point B. Point should be the stop loss and point A should be the buy point, selling should be 1.5 to 2 times the difference of point A and B. Hanging man is when there is uptrend followed by a red candle which is similar to a hammer here next day a red candle forms after hanging man then a strong sell signal is given. Highest point of the hammer should be the point of stop loss and one it crosses the lowest point of the hanging man hammer then a short sell signal is given.
Hammer: When the opening price and closing price are near the highest price, then a hammer shaped candlestick is formed and it is green in color We can buy.
Hanging Man: When the opening price and closing price are near the lowest price or highest price, and if it is red in color then it is hanging man. We can sell.<div class=”bbp-reply-content”>
when a candlestick has very big lower tail (twice as big as body) with open and close near to the highest it is hammer. It indicates bullish. Buy at high point of hammer. SL at lowest.
when a candlestick has very big upper tail(twice as big as body) with open and close near to the lowest it is hanging man. It is bearish. Sell at lowest point. SL at highest point of hanging man
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after a good uptrend if a candlestick is formed with a very big lower tail and open and close very close, but open lower than close then it is called a hammer or hanging man.
Hammer is a sign of strength and it indicates a bullish trend.
- It appears after a significant price fall.
- The lower tail should be at least twice the size of the body.
- No or insignificant upper tail.
- High volume is expected.
- The body should be positive(green).
Entry price : the point at which the price crosses the Hammer high.
Stop loss : Hammer low.
Exit price : Risk taken = Entry price – Stop loss. Exit price = Entry price + (2*Risk Taken).
Hanging man is the inverse of Hammer.
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