The Candlestick “Hanging Man” pattern occurs at the top of a long price ascent.  It is marked by a price bar which has a small “real body” at the top of the period’s price range.  The pattern is considered to be bearish, but it requires a lower close in the next period for confirmation of the bearishness.

The “Island Top” is not a Candlestick formation per se.  It is defined as one or more price bars (almost always more than just one, which has a different name), a gap up at the first bar, and a gap down at the second bar.  The Island Top is considered to be bearish.

The attached chart is an example of the Hanging Man and the Island Top occurring at the same time.  Note the lower close (in the tall black candle) following the third bar of the Island Top, which was also the Hanging Man.

We think that these two bearish patterns, occurring together, are a predictor of lower prices to come.

William Kurtz

November 19, 2009

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