A hangman candle is a single formation candle that can signal a reversal of a trend. Visually, it contains a small body and a lower wick longer than its body. They only occur in an uptrend. A hangman candle forms when the price of a stock falls from its opening price. In a textbook example, the opening price is the result of a gap up from the prior day close. At this point, the sellers are in control. The stock reaches a price that buyers like and they return the price either close to its opening price or above. The stock closes at this price and a hangman candle is born. The psychology behind a hangman candle is that the buyers have exhausted an extended bull run. The highest significance is placed when this occurs at a 52 week high. More significance is placed when this occurs off of a resistance level. Additional significance is placed on it when there is an increase of volume. Hangman candles require confirmation. The reversal probability increases if the stock price opens lower the following day. You will not see this candle frequently for it will appear primarily at the end of trends. Just remember that this ONLY occurs in an uptrend. They have little to no meaning when they occur elsewhere. This candle is exactly the same as a hammer candle BUT is called a hangman when it occurs at the end of an uptrend. We will provide you with examples to help you identify this candle formation.
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