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, most of the names are inspired by how the patterns look on the chart or by the story they seem to tell about market behavior. The Tower Top is no exception. The name comes from its unique, tower-like shape that stands out clearly when the pattern forms at the top of an uptrend.
Here's the idea: the pattern starts with a tall, strong bullish candle, which looks like the "left wall" of a tower. Then, in the middle, you see a cluster of small-bodied candles gathered close together. These smaller candles form the "roof" of the tower and show that the market is losing momentum. Finally, the pattern ends with a tall bearish candle, acting as the "right wall" of the tower, signaling that sellers are back in charge. When you put all of these pieces together on the chart, it really does resemble a tower rising upward and then topping out. That’s why it's called the Tower Top; it's a visual metaphor, not just a technical term. And beyond the name, the story it tells is simple: after a strong rise, the market has run out of fuel, and a reversal may be just around the corner.
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:
Strong Bullish Candle (The start)
The pattern kicks off with a big bullish candle, long, green, and full of energy. This candle is often called the "left side of the tower," because it's the tall structure that marks the beginning of the setup.
A cluster of smaller candles (The slowdown phase)
Strong Bearish Candle (The reversal)
Finally, the formation ends with a large bearish candle—long, red, and usually very noticeable. This candle is called the "right side of the tower" and it signals that sellers have stepped in, taking control and conceivably starting a downward move.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
The Tower Top is one of those patterns that really stands out on price charts. When you spot it near a resistance level, it can be a strong hint that the market might be ready to turn downward. In other words, it's a warning sign that the buying momentum is fading and sellers may start to take control.
If you want to trade using the Tower Top, the key is to be careful and plan ahead. You need to think about where your selling points will be, where to place your stop loss to protect your capital, and what your target levels should be if the price starts to drop. One helpful approach is to wait for confirmation, like a follow-up bearish candle, before jumping in. That way, you reduce the risk of entering too early and getting caught in a temporary pullback.
Overall, trading with the Tower Top is all about combining observation with strategy. Recognize the pattern, confirm the signals, and make sure your risk management is in place. If you do that, you can take advantage of expected reversals while keeping your losses under control.
- 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.