Let us proceed to the next patterns. Let us have a look at the Hammer and Hanging Man...
You got 60 seconds to find 5 difference in above pictures apart from their names.
Can't seem to find... you are not to blame. Off course they are same and this is not the isolated case. There are a couple few more patterns which looks all the same. In Japanese Candlesticks, these similar looking patterns are differentiated with the help of context. It is the context in which these patterns appear which matter and it decides their name. Quite similar to words in English... ring any bell.
Hammer or Hanging Man patterns are characterized by a body at the top with non existent or very small upper horn. The lower horn has to be at least twice the size of the body of the candle for it to be classified as Hammer or Hanging Man. It shows that the price opened at the high point of the day and then during the day the price fell much lower and then it bounced back to close near the opening price (slightly above or below) again.
Hammer, occurs during a downtrend and it indicates that the reversal is due now. On the next trading day if stock opens higher, it is a very reliable sign that Hammer is confirmed and stock is coming out of downtrend. See below for example. Sorry for the low quality of image... just pulled out of some random chart I had.
Hanging Man on the other hand appears in the uptrend. It usually signals that bulls are running out of steam and during the day bears had almost taken control only to give it back to the bulls by the end of the day. Hanging Man is very reliable if next day we see a lower price. See below.
Next we will have a look at the Inverted Hammer or Shooting Star. It will be another 'Find the Difference' pattern for you and it will be posted on or before tomorrow... I promise. Visit Options Blog for a fresh post in a short while.
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