Get To Know The Hanging Man Pattern When You Learn Technical Analysis
For full-time investors who rely on volatility and day-to-day fluctuations in security prices, it is an understatement that they must learn technical analysis. Such analysis enables them to make appropriate changes to their positions, but not all technical analysis accommodates short-term trading. For traders who look to take advantage of quick entry and exit points, short-term patterns are their best allies.
This installment of the Learn Technical Analysis Series examines a short-term pattern called the Hanging Man. With an eye on the short-term outlook of a security, this pattern indicates when it is time to sell an existing position or sell short a non-existent one. In other words, it is a bearish signal.
When looking for a Hanging Man, investors will need to study the security's candlestick chart. For those who have just started to learn technical analysis, the candlestick consists of horizontal lines for the open and close, and a vertical line for the day's range. The open and close lines are squared off, forming the "Real Body" and if the range traded above the open or below close, that part forms the tail, or "Shadow."
When it comes to the Real Body of a Hanging Man, it will need to be a "Black Body" meaning the security closed lower than it opened. The Shadow will look like a tail with preferrably no Shadow above the Real Body. The tail should also be rather long, ideally twice as long as the box of the Real Body. For investors who are just starting to learn technical analysis, the Hanging Man might look more like a square tadpole than a hanging man.
Since no pattern should ever be used in isolation, investors who learn technical analysis should confirm the Hanging Man with other indicators and analysis, including the security's and/or market's fundamentals.
On the open of the day following the Hanging Man pattern, investors should seek a gap down from the Real Body of the pattern. The wider the gap (the farther down it opens from the Real Body) the better. Additional confirmation can be obtained if the Real Body of the day that follows the pattern is entirely below the Real Body of the Hanging Man pattern. Since most traders who learn technical analysis will not wait two days to execute a trade based on a Hanging Man, other technical and fundamental indicators should be used to confirm or refute the pattern early.
When the overall market sentiment is overly bullish, Hanging Man patterns are often falsely created. For this reasons, investors should sit tight until the following day. If the open is higher than the Real Body of the Hanging Man, it is likely a false signal. Also, investors should never forget to take the Hanging Man's Real Body's color into account -- "green and white are a bear trap's delight!" Remember that a red or black Real Body creates a more reliable pattern.
Without question, people who learn technical analysis can use their skills as primary discovery tools for buying and selling opportunities, or as confirmation for trades. Ultimately, they will make smarter trades and enjoy the rewards. - 23162
This installment of the Learn Technical Analysis Series examines a short-term pattern called the Hanging Man. With an eye on the short-term outlook of a security, this pattern indicates when it is time to sell an existing position or sell short a non-existent one. In other words, it is a bearish signal.
When looking for a Hanging Man, investors will need to study the security's candlestick chart. For those who have just started to learn technical analysis, the candlestick consists of horizontal lines for the open and close, and a vertical line for the day's range. The open and close lines are squared off, forming the "Real Body" and if the range traded above the open or below close, that part forms the tail, or "Shadow."
When it comes to the Real Body of a Hanging Man, it will need to be a "Black Body" meaning the security closed lower than it opened. The Shadow will look like a tail with preferrably no Shadow above the Real Body. The tail should also be rather long, ideally twice as long as the box of the Real Body. For investors who are just starting to learn technical analysis, the Hanging Man might look more like a square tadpole than a hanging man.
Since no pattern should ever be used in isolation, investors who learn technical analysis should confirm the Hanging Man with other indicators and analysis, including the security's and/or market's fundamentals.
On the open of the day following the Hanging Man pattern, investors should seek a gap down from the Real Body of the pattern. The wider the gap (the farther down it opens from the Real Body) the better. Additional confirmation can be obtained if the Real Body of the day that follows the pattern is entirely below the Real Body of the Hanging Man pattern. Since most traders who learn technical analysis will not wait two days to execute a trade based on a Hanging Man, other technical and fundamental indicators should be used to confirm or refute the pattern early.
When the overall market sentiment is overly bullish, Hanging Man patterns are often falsely created. For this reasons, investors should sit tight until the following day. If the open is higher than the Real Body of the Hanging Man, it is likely a false signal. Also, investors should never forget to take the Hanging Man's Real Body's color into account -- "green and white are a bear trap's delight!" Remember that a red or black Real Body creates a more reliable pattern.
Without question, people who learn technical analysis can use their skills as primary discovery tools for buying and selling opportunities, or as confirmation for trades. Ultimately, they will make smarter trades and enjoy the rewards. - 23162
About the Author:
Chris Blanchet has more than 16 years of experience as a Financial Advisor at one of the world's largest banks by market capitalization. To learn technical analysis free visit Online Trader Today.com where Chris writes about Technical Analysis and Options trading. Chris also maintains a debt-free blog at How To Repay Debt.com
posted by X - Men @ 12:36 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home