Table of contents
- Hanging man candlestick pattern
- Shooting star candlestick pattern
- How do hanging man and shooting star candles work?
- How to trade with a hanging man and shooting star
The hanging man and shooting star candles are often considered a part of the hammers group, along with the hammer and inverted hammer. All four patterns are indeed very alike in their structure and are single-candle reversal chart patterns.
As we mentioned in our previous article about hammer candle stick patterns, the main difference is that the hanging man and shooting star appear in uptrends, while both hammers occur in a downtrend. Hence, the hanging man and shooting star patterns are considered bearish – the opposite of bullish hammers.
Hanging man candlestick pattern
A Hanging man formation is the uptrend version of a hammer candlestick. Their structures are virtually the same – little to no upper shadow (wick), a small body with the high, closing and opening price close to each other and a long wick extending to the bottom. The lower wick is usually at least twice as long as the body.
A Hanging man candle can also be bullish (green) and bearish (red). Since this is a bearish reversal pattern, the red version of it is usually considered a stronger indication of the potential trend reversal.
Shooting star candlestick pattern
A shooting star candle is the uptrend version of the inverted hammer candlestick. Its short body is created by the closing, opening and high prices located near each other and a twice as long wick protruding upward. A lower shadow is usually either very short or doesn’t occur at all.
Similar to the hanging man candle, a bearish shooting star formation is considered stronger due to the overall bearish nature of the pattern.
How do hanging man and shooting star candles work?
Occurring in an uptrend, both hanging man and shooting star indicate that the trend is losing its momentum, and bears are trying to overpower the bulls.
The hanging man candle tells us that, although bulls still have some power that helped them to achieve a high close, bears were powerful enough to push the price much lower to create a long wick at the bottom.
The shooting star pattern is considered stronger than the hanging man candle because bears managed to push the closing price to the bottom despite the long wick at the top created by bulls.
How to trade with a hanging man and shooting star
When a hanging man and shooting star patterns occur, traders have two options. The first option is to go short right away, using the candle’s closing price as an entry point and its high price as a stop loss. The second option is to wait for two to three candles to close and confirm a trend.
There is no right or wrong decision, as it depends purely on the trader’s perception and risk appetite. However, it is important to keep in mind that neither hanging man nor shooting star candles serve as a direct trading signal. Just like any other chart pattern or technical indicator, they only suggest that a bullish trend is weakening, and price reversal may occur. It doesn’t necessarily mean that the price will reverse right after the hanging man or shooting star candle – it may take some back and forth between bulls and bears.
As you can see on the image below, a shooting star was formed at the end of the uptrend. However, the price didn’t reverse immediately. It took a hanging man and some side traction for bears to assume power and turn the trend downward.
It may also be helpful to confirm the trading signal you identified with other technical analysis tools, such as trendlines and technical indicators.
Another important set of tools to use are risk management tools – stop loss and take profit. We suggest using them at all times to prevent larger than expected losses.
Create a free demo account to practise identifying Hanging Man and Shooting Star candlesticks and opening positions in a risk-free environment. To discover more helpful chart patterns, head to our next article, where we will explain how a spinning top candle works.
