Figure 3: Hanging Man with black confirmation

In Figure 3, the price was moving in an uptrend before being interrupted by a Hanging Man pattern. A black confirmation candle then formed and the price began to retrace.

After learning how to interpret Hammer and Hanging Man patterns, we are going to explore another way of using this Hammer pattern to our advantage with or without the white candle confirmation. Since Hammer and Hanging Man reflects a strong change in power between the bulls and the bears, it will be very effective if we can spot them near support or resistance levels. These can be determined either by trend lines, Fibonacci, moving average and so on. Alternatively, we can use an oscillator like RSI or Stochastic together with the pattern too.