Hanging Man Candle Pattern

The hanging man is probably one of the better known candlestick patterns, but it does not work as many expect. Candle theory says it acts as a bearish reversal of the prevailing price trend, but my tests show that it is really a bullish continuation 59% of the time. Of course, that is what I call “near random.” The hanging man appears frequently in a historical price series, but the trend after the breakout is dismal, ranking 87 out of 103 candle patterns where 1 is best.

Hanging Man Candlestick: Important Results

Theoretical performance: Bearish reversal Tested performance: Bullish continuation 59% of the time Frequency rank: 16 Overall performance rank: 87 Best percentage meeting price target: 86% (bear market, down breakout) Best average move in 10 days: -3.60% (bear market, down breakout) Best 10-day performance rank: 59 (bear market, down breakout) All ranks are out of 103 candlestick patterns with the top performer ranking 1. “Best” means the highest rated of the four combinations of bull/bear market, up/down breakouts. The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Hanging Man

Hanging Man Candlestick: Discussion

The hanging man candlestick is a popular one, but one that shows lousy performance. In theory, it is supposed to be a bearish reversal but it actually is a bullish continuation pattern 59% of the time. The best performance that it can muster is after a downward breakout in a bear market. Price drops an average of 3.60% in 10 days, ranking it 59 for performance. That is just mid list. Outstanding performance would be a move of 6% or more.

Hanging Man Candlestick: Example

A downward breakout is not unusual since an upward breakout only occurs 59% of the time. I consider that almost random. With price closing so near the top of the candle, an upward breakout (a close above the top of the candle) should be expected anyway.

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