The greater the degree of penetration into the white real body the more likely a top will occur. However, by the end of the second day’s session, the market closes near the low of the day and at least 50% within the prior day’s white body. The second day’s price opens above the prior session’s high (above the closing of previous day is also acceptable). The first day of this two candlestick pattern is a strong white real body. It is a two candlestick pattern that is a top reversal after a uptrend or, at times, at the top of a congestion band.This could be a blow off (volume using candlestick charts is discussed in Chapter 15).ģ) Dark-Cloud Cover (bullish is piercing pattern): If there is heavy volume on the second real body of the engulfing pattern.If a long, white real body closes above the highs of the dark-cloud cover, or the bearish engulfing pattern, it could presage another rally.This would reflect a dissipation of the prior trend’s force and then an increase in force behind the new move. If the first day of the engulfing pattern has a very small real body and the second day has a very long real body.In an uptrend, a minute black real body enveloped by a very large black real body could be a bearish reversal pattern). Thus, after an extended downtrend, a tiny white real body engulfed by a very large white real body could be a bottom reversal. (The exception to this rule is if the first real body of the engulfing pattern is so small it is almost a doji (or is a doji). The second real body of the engulfing pattern should be the opposite color of the first real body.The market has to be in a clearly definable uptrend or downtrend, even if the trend is short term.Another bearish verification could be a black real body session with a lower close than the hanging-man sessions close.The greater the down gap between the real body of the hanging-man day and the opening the next day the more likely the hanging man will be a top. Bearish confirmation for hanging man is gap down next day.Hanging Man type of price action only shows that the market starts to sell off, it has become vulnerable to a fast break. Wait for bearish confirmation with the hanging man.Although the real body of the hammer or hanging man can be white or black, it is slightly more bullish if the real body of the hammer is white.The longer the lower shadow, the shorter the upper shadow and the smaller the real body the more meaningful the bullish hammer or bearish hanging man.It should have no, or a very short, upper shadow.A long lower shadow should be twice the height of the real body.The color of the real body is not important. The real body is at the upper end of the trading range.1) The hammer and hanging man can be recognized by three criteria:

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