Candlestick Pattern: Hammer
The candlestick hanging man and hammer patterns are reversal patterns consisting of the same candlestick form. Both of these patterns are often referred to as umbrella poles because of their shape. Also both of these patterns (hanging man and hammer) have the same shape although one indicates bearish and the other indicates bullish.
One that distinguishes both is the trending nature that appears. If the umbrella pattern that emerges during the uptrend is referred to as the hanging man pattern and if it appears as the downtrend then this is called the hammer pattern. Both of these patterns are single candlesticks which consist of a candle with a real body that is on top with a small shadow or no shadow on it and has a relatively long bottom shadow. Long shadow bottom at least twice the length of real body candle. The candle color of the hanging man and hammer patterns is not too important.
This hammer pattern in Japanese is called takuri, which means to test the depth of water or lake. The hammer pattern is very similar to the appearance of the hanging man pattern only the hammer pattern appears when the downtrend and is a bullish signal. This hammer pattern also indicates a possible trend reversal.
This candlestick pattern is called a hammer because it is considered to hit the hammer at the base of the descending trend. Shadow down the long from the hammer pattern is a bullish signal, no matter the color of the real body candlenya. This indicates that the pair or stock has been sold with a sharp decline but the demand re-entered the market. This forced the price back up to close at or near the high level in that period.
You should look for reversal. At least, the candlestick after the appearance of the hammer candle should be closed above the real body of the hammer candle.
The benefit of identifying hanging man patterns is that you can get ready for a reversal position with a possible stop placement not too far away. And if a true trend reversal occurs, you have the best position at the beginning of a trend reversal.