After a sharp rise of approximately 1.8 percent within an 18-hour timeframe, the USD/JPY presented a dark cloud cover and a hanging man candle line.
Data Sheet
- Reference: CS0018
- Security: USD/JPY
- Timeframe: Hourly Chart (October 31, 2023)
- Patterns:
- Dark Cloud Cover
- Hanging Man
- High-Wave
1. Signal Formation
Following a series of candlestick patterns indicated in blue below and examined in case study 0016, the USD/JPY saw a remarkable ascent in a short period of time in October 2023.
After a sharp rise of approximately 1.8 percent within an 18-hour timeframe, the first significant bearish candle made its appearance on the chart. This red candlestick presents a dual interpretation since it could be viewed as:
- The Second Candle of a Dark Cloud Cover: Observe that the preceding session featured a sizable green candle and the second candle's body penetrates deeply into the first one, forming a dark cloud cover. It's not, however, a classic dark cloud cover because the closing price of the second candle is not near its lows.
- A Variation of the Hanging Man: The textbook version of the hanging man pattern typically features a shorter real body than what is shown in the chart below. This is why we qualify it as a variation. An important characteristic of the hanging man is that there should be bearish confirmation. A method of bearish confirmation is to wait to see if the market closes under the hanging man's real body. This is what unfolded five trading sessions later.
![USD/JPY: Dark Cloud Cover and Hanging Man in October 2023 (Hourly Chart)](https://www.dollarcontext.com/content/images/2023/11/1-CS0018-Signal-Formation.png)
2. Early Market Transition
The chart above illustrates that before initiating the decline, the market experienced a successful test of the resistance level set by both the dark cloud cover and the hanging man.
3. Resolution
Following the top reversal, the market entered a discernible downtrend. We'll add here that during this downward movement, a high-wave candle appeared, signaling caution. Nevertheless, this signal was not validated, as there was no subsequent close above the high-wave candle's peak.
![USD/JPY: Decline After the Hanging Man in October 2023 (Hourly Chart)](https://www.dollarcontext.com/content/images/2023/11/3-CS0018-Resolution.png)
4. Conclusion and Subjective Review
The confluence of two reversal patterns within a brief span, especially after a steep upward move, should be viewed as a potential bearish situation that should be taken seriously.
This scenario unfolded with the USD/JPY in October 2023 as two candlestick patterns marked the end of the previous rally and the beginning of a downtrend.