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.
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| 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:
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| 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.