The Hanging Man and Hammer Japanese Candlestick are patterns thats look exactly alike, but have different results based on the preceding price action; They both have small real bodies (black or white), long lower shadows or tails and short or non-existent upper ones.
As with most candle stick formations, the Hanging Man and Hammer candlestick require confirmation before action. Hammer Candlestick “The Hammer” is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels.
After a decline, hammers candlestick signal a bullish signal. The low of the long lower shadow implies that sellers drove prices lower during the session; however, the long tail indicates that buyers regained their footing towards the end of the session and drove prices higher. While this may seem enough to act on, hammers require further bullish confirmation. The fact that the hammer’s low acted as rejection level indicates that there’s a lot of sellers there. Further buying pressure, and preferably with normal trading volume, is needed before acting. Such confirmation could come from a gap up or long white candle stick. Hammers are buying dips; this is why a confirmation is needed to validate the reversal.
Hanging Man Candlestick “The Hanging Man” is a bearish reversal pattern that can also mark a top or resistance level. After an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the red flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candle.
It should be noted here that the hammer significance and credibility is higher than the Hanging Man, since there are other forms suggesting decline in prices after an increase, such as the Inverted Hammer.