The "Hammer" and "Hangman" reversal price models

Price figures are often used by traders in technical analysis both as its independent type and as a supplement to other forecasting techniques. This course of lectures can be useful both for beginning traders and experienced masters. I would like to start this series with of reversal candlestick patterns - "Hammer" and "Hangman.

Fig. 1. The reversal candlestick pattern: Hammer and Hangman (Kanazuchi/Tonkachi and Kubitsuri).

Description of the "Hammer" and "Hangman" reversal price patterns

The hammer and the hangman consist of one candle (see Figure 1). They have long lower shadows and small bodies at or very near the top of the daily trading range. Hammer appears on a downtrend and is so named because it forges the bottom, and the Japanese word "tonkachi" for this model translates as "ground". Hangman, on the other hand, appears at the top of a trend or during an uptrend. This name comes from the Japanese "kubitsuri" and arose from the fact that this candle resembles a hanging person.

The rules of formation of these reversal candlestick patterns:
1. The small body is near the upper edge of the trading range;
2. The color of the candle body does not matter;
3. Long bottom candle shadow should be much longer than the body, usually two or three times longer;
4. The candle has there should be no upper shadowand if there is, it is very small.

Market behavior at the time of the "Hammer" and "Hangman" models

Hammer. The market is in downward trendTherefore, there is a bearish sentiment. A trading session opens and the price falls sharply. However, it then rises and the market returns to or near the high of the trading day. The unwillingness of the market to continue the decline in price cools the sellers, and most traders feel uncomfortable with an open bearish position. If the closing price exceeds the opening price (which is indicated by the white body of the candle), the situation for buyers becomes even more attractive. This will be confirmed by a higher opening price with an even higher closing price on the next trading day.

The Hangman. In this case. the market is seen as bullish due to the presence of an uptrend. In order for a hangman to appear, price must fall well below the opening level of the trading session and then rise to close near the high. This results in a long lower shadow that shows how low prices can fall. If the next candle after the gallows candle opens lower, many traders may want to consider selling. Thus, confirmation of the bearish nature of the hangman can be a black candle and a lower opening price of the next candle.

Nuances of identifying the "Hammer" and "Hangman" price models

The lower shadow needs to be at least twice as long as the body, but not more than three times. The upper shadow should not exceed the 5-10% range from maximum to minimum. The bottom of the body should be below the trend for the hammer and above the trend For the Hangman.

Examples of pricing models in the market

Fig. 2. Example of formation of the "Hammer" candlestick pattern on the price chart.

Fig. 2. Example of formation of the "Hangman" candlestick pattern on the price chart.

In the drawings we can see that the trends, after the formation of the hammer and the hangman, really drew the bottom and the top respectively, and changed direction. In the figure the formation of Hangman It turned out to be perfect, without upper shadows and with optimal body/shadow proportions. And the confirmation of the hangman was the closing of the next day with a bearish candle. And here is hammer example I purposely chose a non-optimal one, with a small upper shadow, so that you could see that small shadows in these types of candles can occur (about 10% of the total range of the candle). Just like in the previous example with the hangman, Hammer reversal price model The trend has worked itself out, and the trend, having formed it, has reversed.