The name of this single candlestick pattern is the paper umbrella, because of its resemblance in shape to an umbrella. In the nomenclature and interpreting of these candles, the position of occurrence and of course the shape are important factors.The colour is insignificant in analysing these patterns as the difference between the opening and closing price is small, or in other words, the body is small.
A paper umbrella depending on the previous trend of the market can be termed as hanging man or hammer. The hanging man pattern is a bearish pattern while hammer pattern is a bullish pattern. Its characteristic features can identify a paper umbrella:
- Long lower shadow
- Small body.
If the paper umbrella appears after a downtrend, it is called ‘Hammer’.
If the paper umbrella appears after an uptrend, it is called ‘Hanging man’.