| Start With The Hanging Man Pattern When You Learn Technical Analysis |
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| Written by Chris Blanchet |
| Thursday, 16 July 2009 14:08 |
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Short-term investors rely on volatility and overall stock trends when it comes to making money. It goes without saying that people who want to trade full time will have to learn technical analysis. Armed with this knowledge, traders will be able to execute proper trades and manipulate their positions in such a way to take advantage of short-term profit opportunities. In this regard, short-term patterns become one of the trader's most heavily used tools.
Short-term investors rely on volatility and overall stock trends when it comes to making money. It goes without saying that people who want to trade full time will have to learn technical analysis. Armed with this knowledge, traders will be able to execute proper trades and manipulate their positions in such a way to take advantage of short-term profit opportunities. In this regard, short-term patterns become one of the trader's most heavily used tools. This installment of the Learn Technical Analysis Series examines a short-term pattern called the Hanging Man. With an eye on the short-term outlook of a security, this pattern indicates when it is time to sell an existing position or sell short a non-existent one. In other words, it is a bearish signal. When trying to identify a Hanging Man pattern, investors need to pull up the candlestick chart for the security in question. Rookie investors who have just begun to learn technical analysis will identify this type of chart type by a day's "Real Body" which is a box made up of one horizontal line for the security's open and another horizontal line for the close, and two vertical lines that join them (or box them in). The "Shadow" is the range in which the security trades over and below the Real Body. 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 noted in previous parts of this series, any technical pattern or indicator, including the Hanging Man, should never be used in isolation. Investors who properly learn technical analysis should always confirm the signals they discover. On the open of the day following the Hanging Man pattern, investors should seek a gap down from the Real Body of the pattern. The wider the gap (the farther down it opens from the Real Body) the better. Additional confirmation can be obtained if the Real Body of the day that follows the pattern is entirely below the Real Body of the Hanging Man pattern. Since most traders who learn technical analysis will not wait two days to execute a trade based on a Hanging Man, other technical and fundamental indicators should be used to confirm or refute the pattern early. 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. Even after people learn technical analysis, they will never rely on a single pattern to make a decision on a security. In most cases, they will use the pattern as a starting point and refer to other patterns and indicators to confirm or refute that indication. The more confirmation they have, the smarter their trades and consequently the higher their success. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Chris Blanchet has more than 16 years of experience as a Financial Advisor at one of the world's largest banks by market capitalization. To learn technical analysis free visit Online Trader Today.com where Chris writes about Technical Analysis and Options trading. Chris also maintains a debt-free blog at How To Repay Debt.com |