Price patterns are widely used by traders in technical analysis—both as a standalone method and as a complement to other forecasting techniques. This lecture series is valuable for both novice and experienced traders. We begin with reversal candlestick patterns: the Hammer and the Hanging Man.
Fig. 1. Reversal candlestick patterns: Hammer and Hanging Man (Kanazuchi/Tonkachi and Kubitsuri).
Description of the Hammer and Hanging Man Patterns
The Hammer and Hanging Man each consist of a single candle (see Fig. 1). Both feature long lower shadows and small real bodies located near or at the top of the day’s trading range. The Hammer forms during a downtrend and is named for its role in “hammering out” a market bottom; its Japanese name, Tonkachi, literally means “hammer” or “ground.” The Hanging Man appears at the top of an uptrend. Its Japanese name, Kubitsuri, translates to “hanging,” reflecting its visual resemblance to a person suspended by the neck.
Formation rules for these reversal candlestick patterns:
- The small real body must be positioned near the upper edge of the trading range;
- The color of the real body is irrelevant;
- The lower shadow must be significantly longer than the body—typically two to three times its length;
- The candle must have no upper shadow, or only a very short one.
Market Behavior During Hammer and Hanging Man Formations
Hammer. The market is in a downtrend, reflecting bearish sentiment. Trading opens, and price drops sharply—but then rallies strongly, closing near the session high. This rejection of lower prices cools seller enthusiasm, making many traders uncomfortable holding short positions. If the close is higher than the open (i.e., a white/bullish body), bullish conviction strengthens. Confirmation comes when the next candle opens higher—and closes even higher.
Hanging Man. Here, the market is considered bullish due to an ongoing uptrend. To form a Hanging Man, price must fall significantly below the open, then rebound to close near the session high—creating a long lower shadow that reveals how far sellers pushed price down. If the following candle opens lower, many traders may consider initiating short positions. Thus, bearish confirmation of the Hanging Man includes a black (bearish) candle and a lower open on the next bar.
Identification Nuances: Hammer vs. Hanging Man
The lower shadow must be at least twice as long as the real body, but no more than three times longer. Any upper shadow should not exceed 5–10% of the candle’s full range (high to low). For the Hammer, the bottom of the real body must lie below the prevailing trend; for the Hanging Man, it must sit above the trend.
Real-Market Examples
Fig. 2. Example of Hammer formation on a price chart.
Fig. 3. Example of Hanging Man formation on a price chart.
In both figures, the trend reversed after the pattern formed—confirming the Hammer as a bottom signal and the Hanging Man as a top signal. The Hanging Man example is nearly ideal: no upper shadow and optimal body-to-shadow proportions. Bearish confirmation came via a black candle closing the next session. The Hammer example was intentionally selected to show a non-ideal case—with a small upper shadow (~10% of total candle range)—demonstrating that minor imperfections can still yield valid signals. As with the Hanging Man, this Hammer successfully preceded a trend reversal.
FAQ
What’s the difference between a Hammer and a Hanging Man?
Same shape—but context differs: Hammer forms in a downtrend (bullish reversal signal); Hanging Man forms in an uptrend (bearish reversal signal).
Does candle color matter for these patterns?
No—the real body can be bullish (white) or bearish (black); what matters is position within the trend and shadow length relative to the body.
How do I confirm a Hammer or Hanging Man?
Wait for the next candle: a higher open and close confirms the Hammer; a lower open and black close confirms the Hanging Man.
