Hanging man candlestick formations are another reversal pattern. This formation typically happens following a prolonged uptrend each time a security moves significantly lower following the open, but rallies to close well above the intraday low. It is very important emphasize the hanging man pattern is really a warning of potential price change, not really a signal, in and of itself, to reach short.
“Hang ‘em high” (below ) includes an example found in Alcoa (AA ). On Feb. 15, Alcoa formed a hanging man pattern after a short uptrend, Alcoa opened at $9. 34 created a higher of $9. 36, a coffee of $9. 20 after which closed at $9. 32. So after made a low of $9. 20, Alcoa recovered and closed almost near its opening price.
A trader may need taken short positions when the Feb. 15 low of $9. 20 was taken in subsequent trading sessions. This happened on Feb. 19 when Alcoa opened at $9. 31. When the $9. 20 level was broken, shorts may need been initiated, having a stop loss set in the Feb. 15 high of $9. 36. In later trading sessions, Alcoa reached a coffee of $8. 30.
Although they‘re relatively reliable, candle patterns are only one tool inside a trader’s toolbox. Traders should integrate candlestick analysis, moving averages, Bollinger bands, price patterns (for example triangles ) and indicators (for example stochastic or CCI ) to attain trading decisions. In fact, the break of the simple trendline is really a powerful message that shouldn‘t be ignored, particularly when done about of reversal formations.
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