The Forex market is one of the most liquid and high-volume financial markets in the world. To be successful in this market, you must at minimum be able to read Japanese candlestick patterns and predict future price movements to some extent. In the field of technical analysis, there are various indicators, charts, and candlestick patterns. One of these patterns is the "Ladder Top" candlestick pattern.
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| Ladder Top Candlestick Pattern |
- Topic: Ladder Top
- Type: bearish
- Trend direction: reversal
- Opposite pattern: Ladder Bottom
What is the Ladder Top Candlestick Pattern?
The Ladder Top is a bearish reversal candlestick pattern
showing a change from an uptrend to a downtrend on price charts. This pattern
appears at the peak of an upward price movement and consists of a few
consecutive candlesticks. The first three are usually strong bullish (green)
candles, showing buyers in control, followed by two bearish (red) candles
(sometimes one bullish and one bearish candle) that signal a change in market
direction. This pattern acts like a red flag for candlestick traders, hinting
that the bullish run might be losing steam and a downward move could be coming.
Find the Ladder Top by looking for three bullish candles in
a row, each with a higher high. The fourth candle is often smaller, showing
hesitation, like a doji or spinning top. A fifth candle closing lower confirms
the reversal. This setup is key because it shows buyers exhausting their
strength, allowing sellers to step in. It is most reliable when it forms after a
clear uptrend and near resistance levels, giving us a heads-up to think about
selling or shorting.
Why is it Called the Ladder Top?
The name "Ladder Top" comes from the pattern's visual shape on a price chart. The first three(sometimes four) bullish candles look like steps climbing upward, much like rungs on a "ladder", as the price keeps rising. This upward climb reflects strong buying interest. However, the fourth or fifth candles, which show indecision and then a bearish drop, mark the "top" of this climb, where the market hits a ceiling and starts to reverse. The name Ladder Top captures this journey perfectly. It reflects a steady ascent, like a ladder, as prices climb. The trend then hits a peak, the top, where it changes.
Trading the Ladder Top Candlestick Pattern
This pattern has a notable feature and signals major changes in price action. While the Ladder Top candlestick pattern is forming, several consecutive candles follow each other. The body lengths of these candles are usually equal, but they can rarely be different. The candle in the last step may sometimes have a long wick and a short body. But the candles must be the same color (green).
The Ladder Top candlestick pattern is usually a formation
indicating a trend reversal. When trading in financial markets, upon observing
consecutive candlesticks arranged on an inclined line in an uptrend chart, we
can say that the Ladder Top pattern has formed. This formation often signals
the end of a bull market or a pullback. Over time, buyers begin to withdraw
from the market, and the formation of the first bearish candlestick signals the
beginning of the decline. Now, we can consider opening short positions.
- Selling: The completion of the pattern can signal a possible sell opportunity. We can place a sell order below the close of the first bearish candle (red candle).
- Stop Loss: We may prefer to place our stop-loss level above the formation of the pattern or above the high of the first bearish candle (red candle).
- Target: When the pattern is completed, a downward trend in prices is expected. When setting a target, we can use a method such as the height from the beginning to the end of the pattern as our first preference.
See the trading example on the Euro/US Dollar 4-hour chart:
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| Selling trade on EUR/USD chart with Ladder Top pattern. |
Remember: Forex trading is risky, the "Ladder Top"
pattern is just a tool. Like any trade, emotional control and risk management
are important. Experienced traders know that tools like the "Ladder
Top" are not reliable on their own, and therefore support their analysis
with a variety of factors.