The hangman candle, so named because it looks like a person who has been executed with legs swinging beneath, always occurs after an extended uptrend The hangman occurs because traders, seeing a sell-off in the shares, rush in to grab the stock a bargain price.
In order for the Hanging Man signal to be valid, the following conditions must exist:
- The stock must have been in a definite uptrend before this signal occurs. This can be visually seen on the chart.
- The lower shadow must be at least twice the size of the body.
- The day after the Hanging Man is formed, one should witness continued selling.
- There should be no upper shadow or a very small upper shadow. The colour of the body does not matter, but a black body would be more positive than a white body.
For example
