The Hanging Man and Hammer Japanese candlesticks are patterns that 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.
The Hammer is a bullish reversal candlestick formation that takes shape after a decline. In addition to a potential trend reversal, The Hammer can mark bottoms and support levels.
When the Hammer candlestick appears after a decline in prices, then it is a signal to a bullish reversal. The low of the long lower shadow implies that sellers drove prices lower during the session; however, the long shadow indicates that buyers regained their footing towards the end of the session and drove prices higher than the opening. While this may seem enough to act on, the Hammer candlestick requires further bullish confirmation by a technical indicator or chart patterns because the Hammer candlestick is basically a dip. The fact that the Hammer’s low served as rejection level indicates that there’s a lot of buyers there, however, further buying pressure, preferably with normal trading volume, is needed before acting. This could come from a gap up or long white candle stick.
The Hanging Man is a bearish reversal candlestick that can mark a top or resistance level. When the Hanging Man candlestick appears after an rise in the price, then it is a signal to a bearish reversal. The low of the long lower shadow confirms that sellers pushed prices lower during the session, and then, bulls regained their footing and drove prices higher by the end of the session. As with the Hammer, the Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candle.