When these types of candlesticks appear on a chart, they can signal potential market reversals.

Here are the four basic single Japanese candlestick patterns:

Hammer and Hanging Man

The Hammer and Hanging Man look exactly alike but have totally different meanings depending on past price action.

Both have cute little bodies (black or white), long lower shadows, and short or absent upper shadows.

Single Candlestick Pattern: Hammer and Hanging Man

Hammer at the end of a downtrend and Hanging Man at the end of an uptrend

The Hammer is a bullish reversal pattern that forms during a downtrend.

They named it because the market is hammering out a bottom.

When the price is falling, hammers signal that the bottom is near and the price will start rising again.

The long lower shadow indicates that sellers pushed prices lower, but buyers were able to overcome this selling pressure and closed near the open.

Just because you see a hammer form in a downtrend doesn’t mean you automatically place a buy order!

They need more bullish confirmation before it’s safe to pull the trigger.

A typical example of confirmation would be to wait for a white candlestick to close above the open to the right side of the Hammer.

Recognition Criteria for a Hammer:

  • The long shadow is about two or three times of the real body.
  • Little or no upper shadow.
  • The real body is at the upper end of the trading range.
  • The color of the real body is not important.

The Hanging Man is a bearish reversal pattern that can also mark a top or strong resistance level.

When the price is rising, the formation of a Hanging Man indicates that sellers are beginning to outnumber buyers.

The long lower shadow shows that sellers pushed prices lower during the session.

Buyers were able to push the price back up some but only near the open.

This should set off alarms since this tells us that there are no buyers left to provide the necessary momentum to keep raising the price.

Recognition Criteria for a Hanging Man:

  • A long lower shadow is about two or three times of the real body.
  • Little or no upper shadow.
  • The real body is at the upper end of the trading range.
  • The color of the body is not important, though a black body is more bearish than a white body.