Candlestick Trading Patterns- The Hanging Man, the Hammer And the Spinning Top!
Candlestick charting is a highly powerful tool in the trading arsenal of any trader. In the last two decades, candlestick charting has become highly popular. There are many candlestick patterns that give profitable trading signals. Some are simple while other are complex. Hammer, the Hanging Man and the Spinning Top are three simple candlestick patterns that can be easily spotted. All three are different!
The first question. How do you identify whether this is a Hanging Man or a Hammer? Hammer and the Hanging Man both have a very small candle body accompanied by a long wick either on the bottom. If this type of pattern appears at the top of an uptrend with the long wick at the bottom, it is a Hanging Man. And if it appears at the bottom of an downtrend it is a Hammer.
Now, in most of the cases, you will also find a small wick on the top of the candle body. Now suppose, you find the Hammer or the Hanging Man. What you need is to look for the confirmation the next day!
If the opening price on the next day is less than the previous day’s close, you have a true Hanging Man. If not, then that was not a true Hanging Man. Now suppose, you think that you have spotted the Hanging Man in an uptrend. Wait for the confirmation the next day with the opening price.
Similarly, if you spot a Hammer at the bottom of a downtrend, you need to confirm it with the opening price on the following day. If the opening price on the next day is higher than the closing price on the last day, the Hammer formed was a true Hammer.
When you trade candlestick patterns, you need to look for the confirmation on the following day to confirm that the candlestick pattern formed was indeed true. Once you have the confirmation signal, you can safely trade on that candlestick pattern. If you cannot get the confirmation, you should ignore that pattern considering it to be false. Most of these candlestick patterns are ideally suited for the daily charts.
Spinning Top is a signal that the battle between the bulls and the bears ended in a draw. It will start next day again with ony side giving in. What this means is that an explosive move in the price action can take place the following day. Spinning Top is just like the Hanging Man and the Hammer.
Spinning tops appear much more frequently and are very easy to spot with a very small body in the middle of the candlestick and almost equal wicks on the two sides. A spinning top is a nice indication that the trend is about to change direction. Knowing about a trend change early is a highly profitable trading signal.
Mr. Ahmad Hassam has done Masters from Harvard University. Get this 49 page Quantum Swing Trading Report FREE. Master Candlestick Charting with this 82 page PDF FREE Candlestick Guide!
