HAMMER AND HANGING-MAN LINES CANDLE PATTERN

HAMMER AND HANGING MAN CANDLESTICK

Exhibit 4.4 shows candlesticks with long lower shadows and small real bodies. The real bodies are near th.e top of the daily range. The variety of candlestick lines shown in the exhibit are fascinating in that either line can be bullish or bearish depending on where they appear in a trend. If either of these lines emerges during a downtrend it is a signal that the downtrend should end. In such a scenario, this line is labeled a hammer, as in "the market is hammering out" a base.

  See Exhibit 4.5. Interestingly, the actual Japanese word for this line is takuri. This word means something to the affect of "trying to gauge the depth of the water by feeling for its bottom."
If either of the lines in Exhibit 4.4 emerge after a rally it tells you that the prior move may be ending. Such a line is ominously called a hanging man

(see Exhibit 4.6). The name hanging man is derived from the fact that it looks like a hanging man with dangling legs.
It may seem unusual that the same candlestick line can be both bullish and bearish. Yet, for those familiar with Western island tops and island bottoms you will recognize that the identical idea applies here. The island formation is either bullish or bearish depending on where it is in a trend. An island after a prolonged uptrend is bearish, while the same island pattern after a downtrend is bullish. The hammer and hanging man can be recognized by three criteria:

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