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Paper Umbrella Candlestick Pattern

 

Paper-Umbrella
Paper Umbrella

Paper Umbrella Candlestick Pattern

Paper Umbrella candlestick pattern is another single candlestick chart pattern that confirms various trends in the market and helps the traders/investors to take correct decisions. The meaning and relevance of Paper Umbrella candlestick can change as per its position that where it becomes. Paper Umbrella is characterized by a long shadow with a small real body at top of the candlestick. Idle Paper Umbrella forms when the shadow of the candlestick is at least twice to its real body measure. A little bit of variation is acceptable.
The Paper Umbrella consists of two main patterns:-

  • Hanging man: This is the bearish pattern If the Paper Umbrella forms at the upward rally then it is called a Hanging Man.

  • Hammer: This is the bullish pattern When paper Umbrella forms at the downward rally then it is called Hammer.


Paper-Umbrella-Candlestick

What is Hammer? How it forms? What is the strategy behind the hammer candlestick pattern?

As we see above that Hammer's pattern is a bullish pattern and it forms at the downward rally. The strategy behind this candlestick pattern is that downtrend is continuing into the stock and every day a new low form and everybody is bearish and this candlestick also forms a new low into the stock, a new low is to be made on every new day and the same happened with this candle but there is some positive seen by some buyers activities. Buyers are active and showing interest in the stock along with new low forms. This is call hammer pattern and from here you can see trend reversal.
We will see an example for a better understanding of this chart:


This chart of TCS has been taken from the Money control website.
You can see that Hammer pattern forms at the downward rally of TCS Chart and from here the upward rally starts. This is the time to take the long trade but the decision of risk-averse person would differ from risk-taker. Risk-taker would take the trade on the same day after keeping stop loss of day low but risk-averse would wait for one more candle to confirm if trend reversal happened or not.
When the pattern does not work and make a fake hammer then the risk-averse person will be benefitted and when uptrend starts just after the hammer formed then risk-taker would be in benefit.

Hanging Man

If Paper Umbrella appears of the upward trend of the stock is called Hanging Man. The hanging man singles high only if it forms on the top of an uptrend. After hanging man formed it shows a trend reversal pattern in the stock that is a lower trend starts in the stock soon.


You can see the Hanging Man pattern forms at the uptrend of the stock and a downtrend really starts from here. Here the thinking behind this candle is again the same as in Hammer that every day it is making higher high and same happened today but unable to maintain that high due to sellers controlled the markets. The stock is in the grip of the bears and that's how it starts the trend reversal.

The hanging man gives the opportunity to take short trades:
A risk-averse man can take the short trade after confirmation of one more candle.
Risk takers can take the trade on the same day by keeping the stop loss of days high.

This is not only for traders but also very helpful for investors as they should always check the longterm and short term charts before initializing their stock purchase or sell to initiate a low buy and high sell value.

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