Trade Mini Course - Yin Yang Candle Patterns
Hanging line: Identify potential selling points
In technical analysis, there is an old saying: hammer line buy, sell on the hanging wire.
Both the hammer and the hanging wire are candlestick form, they look the same, but have a completely different meaning.
This article will explain the hanging thread for you.
What is a hanging cord?
The hanging wire is a candlestick pattern in technical analysis to determine whether the market is reversed from bullish to bearish.
The entity of the hanging wire is very small, the lower shadow is very long, the upper shadow is very short or not.
It is worth noting that the upper hanging wire and hammer line look the same, the only difference is where it appears.
The end of an uptrend usually appears on the hanging line, meaning that the price may have topped down from the high. The hammer line appears at the end of the downtrend, meaning the price may rebound bottoming.
How is the hanging wire formed?
The principle of the formation of the hanging wire is very simple, in fact, is the game of long and empty sides.
The hanging wire pattern usually appears in the uptrend, when the bulls are in advantage.
The long shadow of the hanging line shows that the day of the intraday suddenly intervened, the price is significantly lower.
But the long struggles to push the closing price closer to the opening price, forming a physically small candlestick.
In the eyes of traders, intraday sell-off indicates that the long starts to lose their dominant advantage, and the price may turn down from this.
How to identify the hanging wire?
In combat, in the identification of hanging wire form, we need to pay attention to the following points.
Apparently uptrend
Before the hanging line appears, there needs to be a clear uptrend. This means that the price continues to rise over a period of time.
Undershadow at least twice as much as the solid
The lower shadow of the hanging wire is extremely long and, in principle, should be twice or more than twice the solid. At the same time, there is no upper shadow or very short shadow line.
The solid is small (can be a positive or yin wire)
The entity of the hanging wire is very small, it is not required to be a positive or a yin line, but the yin line is more likely to reverse.
The basis for pattern confirmation: the next trading day price is closed below the hanging line entity
The next day closing price of the hanging wire is lower than the physical closing of the hanging wire, is an important basis for form confirmation. If the next day's closing price is higher than the entity on the hanging wire, the pattern fails.
Case analysis
Below, as an example, we take the shape of a lifting wire that appeared in the month of July 2021 in Starbucks (SBUX) stock price.
From the beginning of July 2021, Starbucks equities are on the upward trend.
On the day of the hanging line, the stock price opened high, and then the short began to enter, so that the stock price fell sharply, forming a long lower shadow line.
Then, the long tried to return the scene, and the final stock price was slightly lower than the opening price, forming a small entity.
The next day the stock price is substantially low and finally closed below the hanging wire entity to confirm the completion of the hanging wire form.
From the historical K line we can see that after this, Starbucks shares entered a wave of decline.
summed
The hanging wire is a technical indicator for determining potential departure times.
However, this pattern is not 100% effective and failure is also very common.
Like all technical indicators, the lifting wire should be used with other signals and indicators before making a trading decision.
