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They look identical, a small body near the top with a long lower wick and little or no upper wick, but context reverses their meaning. A hammer forms after a downtrend and signals a potential bullish reversal, showing buyers rejected lower prices. A hanging man forms after an uptrend and warns of a potential bearish reversal, showing sellers stepped in. The candle shape is the same; the preceding trend decides which is which.

A hammer appears at the bottom of a downtrend and hints at a bullish reversal. Its long lower wick shows price fell sharply during the period but buyers pushed it back up to close near the open, rejecting the lows. This shift in control suggests selling pressure may be exhausting. It is not a guaranteed reversal, so traders wait for a strong bullish candle afterwards to confirm before entering.

A hanging man forms at the top of an uptrend and warns of a possible bearish reversal. Its long lower wick shows sellers drove price down during the period before buyers recovered it, revealing that selling pressure is emerging beneath a rising market. Despite the recovery, the appearance of that selling is a caution sign. Because it only indicates probability, confirmation from a following bearish candle is important before acting.

A hammer may indicate a potential bullish reversal, while a hanging man may warn of a potential bearish reversal. Traders often look for confirmation from the following candle before considering whether the pattern supports a trading decision. The pattern can be more significant when it appears around key support or resistance levels and is considered alongside other market factors.

These patterns are not reliable signals on their own and do not guarantee a particular market outcome. On the WrPro platform, CFDs are leveraged products and carry a high level of risk. Traders should consider whether CFD trading is appropriate for them, use appropriate risk-management techniques, and understand that they may lose their invested capital.

Colour is secondary to shape and location, but it adds nuance. A green (bullish) hammer is considered slightly stronger than a red one because it closed above its open, and a red (bearish) hanging man is viewed as marginally more convincing. The long lower wick and the preceding trend are what truly define these patterns. Rather than relying on colour, prioritise confirmation from the following candle.

The hammer is a popular reversal signal but not foolproof, since price can resume its downtrend after one. Reliability improves when it forms at established support, on a higher timeframe, with above-average volume, and is confirmed by a strong bullish candle next. Treat it as evidence of shifting momentum indicating probability, not a certainty. Combine it with other tools and a clear stop-loss to protect against failed signals.