Revealing The Ultimate Magic Of The Umbrella Line Candlesticks (Hammer & The Hanging Man) In 2023

The umbrella line candlesticks are the patterns having small real bodies at the top, with no upper wicks/shadows. But these candlesticks contain long lower wicks and resemble the shape of an umbrella as their names exclaim.

What’s the magic?

The tricky part of the umbrella lines is that their emergence can either be bullish or bearish, regardless of the colors of the candles whether red or green, depending upon the market’s scenario. If they emerge during a downtrend then it’s a signal of bullish reversal i-e the bearish season might get end. And if they appear during a rally it means that the bullish trend might get end now and here they provide the bearish reversal signal.

Note: These patterns are identical to the western patterns known as Island Tops and Island Bottoms.

Types of the Umbrella Line Candlesticks

Explaining its shape in some technical terms we would say that these candles form their bodies at the extreme top end of the range. Their lower wicks will be almost double the size of their actual bodies. The most fascinating stuff about these candles is that they can either be bullish or bearish.

These lines are further categorized under two heads:

• Hammer
• The Hanging Man

Hammer

The umbrella line emerging during the downtrend is known as “Hammer”. It indicates that the reversal of a downtrend might be on the way. The hammer line in shape actually looks like a hammer, the one with the small heavy-weighted head and a long-tailed lower handle.

Important Features of a Classic Hammer

The hammer can be recognized by these criteria as mentioned below:

• The classic hammer candlestick contains a short real body at the session’s top and a long lower shadow almost 2 times or more of the height of its actual body.
• Ideally, the classic hammer candlestick lacks an upper wick but if the hammer-shaped candle emerges with a very short upper wick it will still be considered a hammer line candlestick.
• The umbrella line which takes birth during a downtrend at the bottom is considered to be a hammer.
• The color scheme doesn’t play a vital part in the hammer. It can either be red or green in color but it will work the same. But the little difference is that if it emerges in green color then it can be slightly more bullish than a red one.
• Hammer is quite a strong candle and has very much potential of turning the trends around. So, the confirmation of this pattern through the formation of subsequent candles is not compulsory.

Note: An ideal hammer can also be utilized to confirm the previous support area. For this, a long lower wick of the hammer will probably confirm the support area for the trend. We will discuss it in detail with the proper illustrations in our upcoming articles.

The Hanging Man

The hanging man candle is identical in shape to the hammer, but the only dissimilarity between them is that the hanging man candle emerges during a rally and a hammer appears during a decline.

Important Features of a Classic Hanging Man

The classic hanging man can be recognized by these criteria:

• A hanging man replicates a hammer in shape but it always makes an appearance during an uptrend.
• This pattern isn’t as strong as hammer thus it always requires confirmation after emergence according to the risk-reward aspect (will discuss it in detail in our future articles). Whereas, a hammer doesn’t require any sort of confirmation.
• The long lower shadow is the implication of the bullish trend which is why it works ideally during a downtrend. Thus during an uptrend, it is prudent to confirm the hanging man’s bearish implications before taking the stance before the trend reversal i-e a downtrend.
• The hanging man will work ideally and strongly if it appears at the all-time high or at least high for the particular move.

The Bottom Line

Both the hammer and the hanging man provide signals about the upcoming trend reversals. But one should not rely only on these patterns. That’s why It is recommended to constantly consult other technical indicators simultaneously as well.