Hammer
A hammer has a small body at the top of its range and a lower wick at least twice the body's length, with little or no upper wick. Price was driven down hard during the period and bought all the way back.
The conventional reading: after a decline, this is the first sign that selling has been absorbed. It is a warning that the fall may be over — not a declaration that it is.
Hanging man
Exactly the same candle, appearing after an advance. Now the long lower wick says sellers managed a serious push down during a period when buyers were supposed to be in charge. It is a warning of exhaustion, not a reversal on its own.
The standard requirement is confirmation: the next candle closes below the hanging man's body. Without that, you have an interesting candle and no trade.
Shooting star and inverted hammer
The mirror pair. Small body at the bottom of the range, upper wick at least twice the body, little or no lower wick. Buyers pushed price up and it was sold all the way back.
Why the naming convention is actually useful
It feels like pedantry to insist that a hammer and a hanging man are the same candle with different names. But the convention encodes the lesson: no candle carries its own meaning, and any pattern named without its location is incomplete. If a signal can be bullish or bearish depending on context, then the signal is not the shape — it is the shape plus the location.
What actually makes one of these tradeable
- A real prior move. A hammer needs a decline to be reversing. Three bars of drift is not a decline.
- The wick is decisive. Two or three times the body, not marginally longer.
- Confirmation on the next candle. For a hammer, a close above the hammer's high. For a shooting star, a close below its low.
- A level underneath (or overhead). A hammer landing on support is a different animal from one in open space. Lesson 8 covers this.
Note that the confirmation requirement means you are not trading the pattern — you are trading the market's response to it. That is the correct mental model, and it applies to every pattern in this course.
How to check this yourself
Preview-before-outcome test: find ten candles with a lower wick at least twice the body. Cover up everything to the right of each one and write down whether you would call it a hammer or a hanging man, and why. Then uncover and see what happened. Doing this blind is the only honest way to find out whether you can actually identify the context in real time, rather than in hindsight.