How to identify the Ladder Top candlestick pattern?
The Ladder top candlestick pattern is composed of “5 candles.” Here is the specific sequence of these five candlesticks in the ladder-top candlestick pattern:
- The first three candles in a Ladder top candlestick pattern are always white and are composed of long bodies.
- The opening and closing in the first three candlesticks are always in a way that each candle’s opening and closing are above the opening and closing positions of the prior candle in the sequence.
- The fourth candlestick is white, its body is short, and the candle has a long lower wick.
- The fifth candle in the pattern is black, and its opening is below the body of the shorter fourth candlestick.
|Number of candlesticks||There are five candlesticks in a Ladder top candlestick pattern.|
|Prior Trend||The ladder top candlestick pattern exhibits a bearish reversal pattern, so its prior trend must be bullish where the market was following an uptrend.|
|Forecast||As a bearish reversal pattern, a Ladder Top candlestick predicts that the price will take a dip in the near future. Bears will begin to replace bulls. It is the time when the number of sellers will tend to increase as compared to buyers.|
|Candlestick Sequence||The first three candles are white with longer bodies. The opening and closing of each candlestick is situated above the opening and closing of its previous candlestick. The fourth candlestick is a short white bar having a longer lower wick. The fifth candlestick in a Ladder top is black, having a longer body. The fifth candle opens below the body of the shorter long wicked fourth candle.|
The psychology behind the Ladder Top Candlestick
The psychology behind this candlestick pattern can be elaborated in three steps.
Step 1: First three candlesticks resembles three white soldiers
The first three candlesticks in a Ladder top candlestick pattern suggest a resemblance to three white soldiers’ formations in which each bar is located at a higher level as compared to its previous one. In this step, the bullish sentiment of the market is still persistent, and the buyers are still active.
Step 2: Buyers still active
Step two in a Ladder Top candlestick initiates with the appearance of a shorter white candle having a long lower wick. It is an indication that in the near future, the market is expecting a reversal. The appearance of the fourth shorter white candle in the pattern clears the thoughts of the traders about the candlestick pattern. At this step, traders are very clear that it is not a three-white soldiers formation; instead, it is a strong signal indicating a ladder-top candlestick pattern. The buyers are still active, but seasoned traders become very clear that soon the bullish aspect of the market is going to fade.
Step 3: Sellers are dominant
The third step involves the appearance of a long-bodied black candle just below the body of the fourth shorter candle. Now the market reversal is imminent as the Laddertop candlestick pattern is confirmed. The traders are now pretty much sure about the market reversal, which means it is time to sell your assets at a favorable price. As the bears begin to replace bulls afterward, the number of sellers significantly begins to increase as compared to the number of buyers.
Ladder Top candlestick trading strategy
In the trading strategy, I will add the confluence of the resistance zone because the ladder top is also a bearish trend reversal candlestick pattern. That’s why the probability of bearish trend reversal will increase by the confluence of the resistance zone.
- Entry: when the ladder top candlestick pattern forms at the resistance zone, open a sell trade on closing the bearish candlestick.
- Stop loss: place stops loss above the high of the ladder top or above the high of the resistance zone. It would be best if you chose the safest option for stop loss.
- Take profit: you can use other technical indicators like ATR trailing stop indicator or closing the trade at the support zone.
It is not recommended to rely totally on a single trading signal as the ladder top candlestick pattern shows a 38.2% success rate in general.
The bottom line
The ladder-top candlestick pattern is a very strong bearish reversal indicator which suggests that bulls are going to fade and bears are about to make a move in the near future. This candlestick pattern is a reversal pattern of a bearish nature, suggesting that the market price will face a downtrend sooner. This pattern refers to sell as soon as the fifth bar appears and the pattern is confirmed.