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Tower Top Candlestick Pattern in Trading

This resource provides guidance on the Tower Top candlestick pattern and its use in trading.

 Hi friends, How are you all doing? 

I hope you're well. I've missed you all and I decided to write a new article. Today, I want to discuss an important topic in the financial markets with you. We all strive to understand the volatile nature of the financial markets and its implications for our trading. This is where technical analysis tools, such as Japanese candlestick patterns, act as a guiding light in the darkness. Today's topic is the "Tower Top" candlestick pattern and I can't wait to share it with you.

Tower Top candlestick pattern image.
Tower Top Candlestick Patterns

  • Topic: Tower Top
  • Type: bearish
  • Trend direction: reversal
  • Opposite pattern: Tower Bottom

Why is it called "Tower Top"?

In Japanese candlestick analysis, the names given to candlesticks are often based on their appearances or the situations they indicate. The Tower Top formation follows this tradition, and its name comes from the tower-like structure created by long candlesticks seen at the peak. The Tower Top pattern is named as such because it appears like an upward-reaching tower. Long-bodied bullish and bearish candlesticks form the body of the tower, while small-bodied candlesticks constitute its top.

The Structure of the Tower Top pattern

The Tower Top candlestick pattern frequently forms at the top of an uptrend and signals the end of a bullish market. The pattern consists of multiple candlesticks and its structure usually includes the following elements:

1. Long Bullish Candlestick: The first candlestick in the pattern structure is a long-bodied green candle. It is also known as the left column of the tower.

2. Small-bodied Candlesticks: Following a long bullish candlestick, there occur several consecutive short candlesticks. These small-bodied candlesticks can be of any color and number (three, four, or more). Sometimes they may also appear as long wicks. These candles tend to be close to each other and exhibit a horizontal trend.

3. Long Bearish Candlestick: The final candlestick in the pattern is a long-bodied red candlestick. It is also known as the right column of the tower.

Once this pattern completes its formation, it is anticipated that the bullish trend is nearing its end and a bearish trend is likely to begin. Therefore, the Tower Top candlestick formation is defined as an important candlestick analysis pattern used to identify trend reversals.

Trading with the Tower Top pattern

Tower Top is one of the most prominent patterns observed on price charts. If this pattern is seen at a resistance level, the likelihood of prices entering a downward trend increases further. When trading using the Tower Top candlestick formation, selling points, stop loss levels, and target setting strategies should be considered.

Selling (Short): After the completion of the Tower Top formation, a short position can be opened. We can enter a sell order below the closing price of the last bearish candlestick.

Stop Loss: The stop loss level can be placed above the formation's top or a predetermined resistance level.

Target: In addition to setting a target as low as the height of the formation, alternative methods such as risk-reward ratio or support levels can be used to determine the target.

In the 4-hour chart of the Canadian Dollar/Japanese Yen below, the Tower Top pattern emerges at the end of the uptrend:

Image showing Tower Top pattern signaling a downtrend in CAD/JPY chart.
Tower Top pattern in CAD/JPY chart.

A Point Not To Be Forgotten: Forex trading always carries risks, and candlestick patterns like the Tower Top can be deceptive at times. Therefore, it should not be used in isolation and validation with other analysis tools is an absolute must.

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