WEBVTT 00:09.130 --> 00:15.070 I know what you are thinking. You are thinking that I'm just kidding because you have seen this pattern 00:15.070 --> 00:23.470 five minutes ago and I have introduced the pattern with another name, that is hammer. The hanging man has 00:23.470 --> 00:25.770 the same shape as the Hammer 00:25.780 --> 00:29.430 and actually the first five conditions are the same. 00:29.630 --> 00:32.220 It's only the last one that is different. 00:32.420 --> 00:40.270 In fact the hanging man appears when the market is in an uptrend. Does it make a huge difference? 00:40.270 --> 00:41.830 Let's find out. 00:42.190 --> 00:47.070 Here we have Eurodollar on a four hour chart, I have highlighted in green 00:47.080 --> 00:53.910 all the candlestick that have the same shape of a hanging man but that do not respect the last condition. 00:53.920 --> 00:57.870 That means that they appear when there's not a clear uptrend. 00:58.000 --> 01:02.420 So we are not going to take them as hanging man. In yellow, 01:02.530 --> 01:10.700 you can see the candles that respect all the conditions and so they need to be considered as hanging man. 01:10.750 --> 01:17.350 The best thing to do to verify the strength of this pattern is to analyze the price action before the 01:17.350 --> 01:18.370 pattern; 01:18.370 --> 01:25.020 the price action of the pattern and then combine them and draw our conclusions. 01:25.030 --> 01:31.860 Let's analyze the price action before these two hanging man in yellow. In previous sessions, 01:31.960 --> 01:36.450 the price was going up so there was a clear uptrend before that 01:36.460 --> 01:45.430 the hanging man appears. The hanging man, as a single candle, tells us the same information of the hammer. 01:45.430 --> 01:50.390 The session starts with sellers in control that push the price down. 01:50.470 --> 01:54.410 Then buyers appear and they manage to push the price up, 01:54.430 --> 01:57.770 closing the session near the opening price. 01:57.770 --> 02:03.990 So at the beginning of the session, sellers were in control. By the end of the session, 02:04.000 --> 02:06.390 buyers are in control. 02:06.880 --> 02:12.310 Combining the two analysis, we can say that buyers are in control on the market, 02:12.450 --> 02:16.240 then with the hanging man, sellers attempt to change the trend, 02:16.240 --> 02:22.190 pushing the price down. But buyers react and then the price goes up again. 02:22.210 --> 02:26.120 So at the end of the session that defines the hanging man, 02:26.260 --> 02:30.790 the buyers are in control, not the sellers. 02:30.790 --> 02:36.690 This analysis for me is enough to let me say that I don't recommend to use the hanging man. 02:37.030 --> 02:43.540 I don't want to open short positions on a candlestick that is telling me that the buyers were stronger 02:43.540 --> 02:46.520 than the sellers by the end of the session. 02:46.780 --> 02:49.330 But why traders consider the hanging man 02:49.330 --> 02:51.760 a good reversal pattern? 02:51.760 --> 02:57.680 The first reason is that they see the hanging man as the first trace of sellers on the market. 02:57.970 --> 03:05.260 After all the hanging man is saying that after many bullish sessions, the sellers finally made their move 03:05.260 --> 03:11.210 to push the price down, even if the buyers reacted very well by the end of the session. 03:11.680 --> 03:19.600 The second reason, and from my point of view this is the most important one, is that many traders apply 03:19.600 --> 03:25.750 candlestick patterns the way they study them in the books, without really understanding the logic 03:25.750 --> 03:27.800 behind the pattern. 03:27.940 --> 03:33.680 Don't get me wrong, I don't want to say that I'm the only one who understands candlestick patterns. 03:33.700 --> 03:36.680 There are so many traders better than me out there. 03:36.880 --> 03:45.340 But when I was a moderator for a Forex Forum, I have seen many traders or aspiring traders reading the charts 03:45.430 --> 03:51.710 as if they were selling something on the street market. "Hammer here, hanging man there. 03:51.730 --> 03:53.260 Another hammer here, 03:53.260 --> 03:54.430 let's buy it, 03:54.460 --> 03:57.450 let's sell here on the hanging man". 03:57.520 --> 04:00.520 This is not the way I want you to trade. 04:00.550 --> 04:06.820 I want you to understand every single pattern in order that you will be able to analyze the market with 04:06.820 --> 04:07.740 your brain, 04:07.960 --> 04:10.840 even if you don't remember the name of the patterns.