From the March 2014 issue of Futures Magazine • Subscribe!

Top 5 candlestick strategies

Hanging man

Hanging man candlestick formations are another reversal pattern. This formation typically happens after a prolonged uptrend when a security moves significantly lower after the open, but rallies to close well above the intraday low. It is important to emphasize that the hanging man pattern is a warning of potential price change, not a signal, in and of itself, to go short.

“Hang ‘em high” (below) includes an example found in Alcoa (AA). On Feb. 15, Alcoa formed a hanging man pattern after a brief uptrend, Alcoa opened at $9.34 and made a high of $9.36, a low of $9.20 and then closed at $9.32. So after making a low of $9.20, Alcoa recovered and closed almost near its opening price.

A trader might have taken short positions once the Feb. 15 low of $9.20 was taken out in subsequent trading sessions. This happened on Feb. 19 when Alcoa opened at $9.31. Once the $9.20 level was broken, shorts might have been initiated, with a stop loss set at the Feb. 15 high of $9.36. In later trading sessions, Alcoa reached a low of $8.30.

Although they are relatively reliable, candle patterns are just one tool in a trader’s toolbox. Traders should integrate candlestick analysis, moving averages, Bollinger bands, price patterns (such as triangles) and indicators (such as stochastic or CCI) to reach trading decisions. Of course, the break of a simple trendline is a powerful message that should not be ignored, particularly when done in the neighborhood of reversal formations. 

Bramesh Bhandari writes at and provides online tutoring on technical analysis. He can be reached via email at

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