![]() I pay close attention to the time and sales window, otherwise known as the “tape”, to help me understand the nature of the buy and sell orders coming through.Īs tops take some time to form, you need to wait for confirmation before you heed the signal of the hanging man. Illiquid stocks usually have large bid/ask spreads and this can cause violent swings in the price. For example, if you are day trading using 5 minute charts and the stock only trades 2000 shares per 5 minutes, this setup is most likely not the result of true selling but rather the result of a lack of liquidity. As I said above though, the signals derived from candlestick charts cannot be used on their own volume is also an important component of the analysis. What does the candle tell us about the psychology of the traders in this stock? The long wick indicates that the sellers stepped in and dumped a considerable position into the market, most likely because they are taking profits off the table. The ideal hanging man pattern consists of a short upper shadow, long lower shadow and small real body. This setup occurs after an extended rally and indicates that the trend is weakening and a possible reversal may be at hand. ![]()
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