The "Hanged Man" pattern: how to recognize a bearish signal on the chart

The cryptocurrency market is known for its unpredictability and rapid changes. Prices can soar or plummet in an instant, leaving traders constantly searching for ways to anticipate the next move. One useful tool for forecasting is technical analysis, especially candlestick pattern analysis. Among them, the “Hanged Man” pattern holds a special place as a reliable indicator of a potential bearish reversal. In this guide, we will explore how the “Hanged Man” pattern functions, what signals it provides, and how to properly use it when planning trading operations.

Definition and Main Characteristics of the “Hanged Man”

In technical analysis, the “Hanged Man” pattern is a bearish signal that typically appears at the peak of a bullish movement. It is a candlestick indicator that signals exhaustion of buying momentum and the market’s readiness for a trend reversal.

It is important to note that the “Hanged Man” appears exclusively on candlestick charts, which are becoming increasingly popular among analysts due to the wealth of information they provide. Many traders incorporate candlestick patterns into their trading strategies precisely because they give clear visual signals of potential market changes.

How to Visually Recognize the “Hanged Man” Pattern on a Chart

Recognizing the “Hanged Man” requires attention to detail. This candlestick has several distinctive features. First, the closing price is below the opening price, creating a bearish character for the pattern. Second, the candlestick has a small body, but the lower wick (shadow) is quite long, indicating strong selling pressure during the period.

The upper wick of the “Hanged Man” is usually minimal or absent altogether, demonstrating weak buying pressure. This combination—a small body plus a long lower shadow—makes the pattern easily recognizable even for beginner traders. Visually, it resembles a figure from which its name is derived.

Applying the “Hanged Man” in Trading Strategies

When you notice the “Hanged Man” pattern on a chart, it is generally interpreted as a sell signal. The logic is simple: a bearish signal indicating the start of a reversal from an upward trend, so it makes sense to open a short position or prepare for a price decline.

However, an important clarification must be made here. You should not rely solely on the “Hanged Man” pattern when making trading decisions. History shows that false signals can occur when the pattern forms but a reversal does not follow. This can happen if buying pressure remains strong and the price drop was only a temporary pullback.

A professional approach involves using the “Hanged Man” pattern in combination with other technical indicators—such as support and resistance levels, trading volumes, moving averages, or oscillators.

Comparing the “Hanged Man” with the “Hammer” and Other Patterns

It is important to understand the difference between the “Hanged Man” and visually similar patterns to avoid analysis errors.

The “Hammer” pattern is often confused with the “Hanged Man,” but there is a fundamental difference. The “Hammer” forms when the closing price is above the opening price, making it a bullish signal. Despite the presence of selling pressure (long lower wick), the “Hammer” shows that buyers still control the market. The inverted “Hammer” also acts as a bullish signal but with a long upper wick instead of a lower one.

In contrast, the “Shooting Star” is a clearly bearish pattern, similar to the inverted “Hammer,” but with a distinctly bearish nature. It forms with a long upper wick and indicates an approaching price decline. The difference between the “Shooting Star” and the “Hanged Man” lies in the pattern’s position on the chart and the context of its appearance.

Limitations of the “Hanged Man” Pattern and Risks

Despite its usefulness, traders should be aware of the limitations of the pattern. The main risk is the possibility of receiving a false signal. If you react to the “Hanged Man” pattern without sufficient confirmation, there is a risk of opening a losing position and losing capital.

Another issue is ignoring the overall market context. The “Hanged Man” pattern may look perfect, but if it appears amid a strong upward trend with intense buying interest, the likelihood of a reversal decreases. Traders who do not consider this information often miss profitable opportunities or incur losses.

The third difficulty is the subjectivity of interpretation. Different analysts may assess the strength and significance of the pattern differently, depending on their trading timeframes and experience.

When to Use the “Hanged Man”: Practical Tips

The maximum effectiveness of the “Hanged Man” pattern is achieved by following several rules.

First, always seek confirmation. Before reacting to a signal, check other technical analysis indicators—examine resistance levels, study trading volumes, and observe price behavior in previous periods. If multiple sources indicate a decline, confidence in the trading decision increases.

Second, use the “Hanged Man” as part of a comprehensive strategy, not as the sole basis for a trade. Combine it with fundamental analysis of the cryptocurrency project to get a more complete picture of the market situation.

Third, manage risks. The “Hanged Man” pattern can help identify potential entry points for a short position, but always set stop-loss orders to protect against unexpected movements against your position.

Finally, remember that in the cryptocurrency sphere, there are no guarantees. Even the clearest “Hanged Man” pattern does not guarantee a trend reversal. The market can behave unpredictably, so maintain flexibility and be ready to adapt your strategy as conditions change.

Why the “Hanged Man” Pattern Remains Relevant for Traders

Despite risks and limitations, the “Hanged Man” pattern retains its value as a technical analysis tool. Its main advantage is ease of recognition. The long lower wick with a small candle body creates a visual image that is easy to notice even for beginners.

Moreover, the “Hanged Man” pattern is useful for identifying potential reversal zones and confirming resistance levels. If the “Hanged Man” forms near a significant resistance level, it can serve as additional confirmation that the price has encountered a serious obstacle to further growth.

The key is to remember the need for additional confirmation before making any trading decision. The “Hanged Man” pattern is a good initial signal but not a final verdict. Always confirm it with other indicators and analysis before opening a position. This comprehensive approach helps minimize risks and increases the likelihood of successful trades in the volatile cryptocurrency market.