The Hanging Man is a Great Starting Point to Learning 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.
As part of the ongoing Learn Technical Analysis Series, we will
discuss a short-term pattern known as the Hanging Man. This pattern
gives traders an outlook as to the short-term range of that security.
And given its gloomy name, investors can immediately identify the
pattern as 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."
The Hanging Man will consist of a small "Black Body" formed by a
higher open and a lower close, as well as a long "Lower Shadow"
meaning the stock traded much lower than the close at some point in
the day. Ideally, the Lower Shadow will be at least twice as long as
the Body. If you are just starting to learn technical analysis, the
Hanging Man might look like a square tadpole with a straight tail.
As with any pattern, people who learn technical analysis will still
want to confirm signals with other indicators, including fundamental
analysis.
With the Hanging Man, investors will likely want to see a bearish gap
between the Real Body of the Hanging Man on the open of the next
session. The wider this gap, the better. With this in mind, the Real
Body of the following day should ideally be lower than the close of
the previous day. For this reason, investors really need to know more
than a handful of patterns when they learn technical analysis skills.
In some cases, bullish market activity could produce a false Hanging
Man pattern. Investors can confirm a false pattern when the open of
the next day's session is higher than the Real Body of the signaling
Hanging Man pattern. As well, investors should be wary of White Real
Body patterns, which occurs when the pattern's close is higher than
the open.
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.

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