The hangman candle, always occurs after an extended uptrend. The hangman occurs because traders, seeing a sell-off in the shares, rush in to grab the stock a bargain price.

Hangman Candle

CONDITIONS FOR A HANGING MAN CANDLE TO BE VALID

The stock must have been in a definite uptrend before this signal occurs. This can be visually  seen on the chart.

The lower shadow must be at least twice the size of the body

The day after the Hanging Man is formed, one should witness continued selling

There should be no upper shadow or a very small upper shadow

The hammer puts in its appearance after prolonged downtrend

 Hammer Candle

On the day of the hammer candle, there is strong selling, often beginning at the opening bell. As the day goes on, however, the market recovers and closes near the unchanged mark, or in some cased even higher. In these cases the market potentially is “hammering” out a bottom

CONDITIONS FOR A HAMMER CANDLE TO BE VALID

The stock must have been in a definite downtrend before this signal occurs. This can be  visually seen on the chart.

The lower shadow must be at least twice the size of the body

The day after the Hammer is formed, one should witness continued buying. Also the hammer candle should have no upper shadow/very little shadow

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