Ladder Bottom Candlestick Pattern: It is crucial to understand candlestick patterns for technical analysis because they provide insight into the price movements of securities. We will explore the significance, creation, and trading techniques associated with the ladder bottom pattern among the various candlestick patterns available. 

The formation of patterns assists traders in determining the trajectory of security, allowing them to identify favourable entry and exit points and develop effective trading approaches.

Ladder Bottom Candlestick Pattern – Meaning

The Ladder Bottom candlestick pattern is a rare and complex bullish reversal pattern that forms at the end of a downtrend. It consists of five candles: three consecutive long red(bearish) candles, a fourth red candle with a short body and a long upper wick, and a fifth green(bullish) candle that gaps up and closes above the body of the fourth candle. 

This pattern indicates a weakening of the bearish momentum and a potential transition to an uptrend. 

Ladder Bottom Candlestick Pattern – Formation

The ladder bottom pattern indicates a reversal after a downtrend. This candlestick pattern comprises the following candles:

1. Three consecutive long red candles: These candles have successive lower opens and close, resembling the Three Black Crows formation.
2. The Fourth candle is a short-bodied red candle with a long upper wick.
3. The fifth candle is a large green candle that opens above the close of the fourth candle.

The formation of this pattern suggests that the sellers have been exhausted, which has allowed the buyers to take control of the security.

Ladder Bottom Candlestick Pattern – Psychology

The psychology behind the Ladder Bottom pattern is rooted in the idea that the bears are losing control and the bulls are gaining strength. 

The first three long green candles show a strong downtrend, but the fourth candle with a short body and an upper wick indicates that the bears are struggling to maintain their momentum. This weakening of the downtrend is a sign that the bulls are gaining strength and the market is about to reverse. The fifth green candle then confirms the reversal, signalling that the bulls have overtaken bears and a new uptrend is beginning.

The Ladder Bottom pattern is a valuable clue for timing long positions, as it can signal the end of the downtrend and the start of a new upward trend.

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Ladder Bottom Candlestick Pattern – Trading Ideas

Once the ladder bottom pattern is formed, traders can find an entry opportunity to enter a long position in a security.

Entry:- Entry is always preferred after the confirmation of the pattern, it can be set at the closing price of the fifth candle of the ladder bottom pattern formed.

Stop loss:- The stop loss to the position can be placed below the low of the ladder bottom pattern. As a part of risk management, trading with stop loss and respecting the logical stop loss is important.

Profit target:- For the long position entered in a ladder bottom pattern, a target can be based on the risk-to-reward ratio or to the next levels of resistance in the market.

Ladder Bottom Candlestick Pattern – Example

Chart of Reliance Industries showing the formation of valid ladder bottom candlestick pattern with entry and stop loss levels.

With the confirmation of the ladder bottom chart pattern formed in the above chart an entry at Rs 2868.85 and stoploss at Rs 2858.50 can be placed.

Key factors of ladder bottom candlestick Pattern

• The prior trend should be a downtrend.
• The first three candles should be red.
• The fourth candle should be a short-bodied red candle with an upper wick.
• The fifth candle of the pattern should close above the body of the fourth candle body which validates the pattern.

Conclusion

From the above learning, it is clear that the formation of a ladder bottom pattern signals a strong bullish reversal trend and traders can build enough strategies to enter a long position in a security. Before spotting the pattern, traders need to follow the rules of a valid pattern formation and it is always preferred to enter a trade with confirmation of the pattern by combining with other technical tools like indicators, chart patterns and candlestick patterns.

For profitable trades in the long run follow the learnings with good risk management of the positions.

Written by Deepak

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