Bearish Ladder Top : Meaning, Recognition Criteria and Trading Strategies

Bearish Ladder Top

This is a five-candle bearish reversal pattern that begins with three powerful white candlesticks and happens at the conclusion of an uptrend. The pattern's first four candles are bullish candlesticks, followed by a bearish candle that opens with a gap down.

Recognition Criteria

  • The market is characterized by a prevailing uptrend.
  • The first three candles are bullish, and rather tall.
  • Three strong white candlesticks occur much like the Three White Soldiers pattern.
  • The fourth white candlestick closes also higher but has a long lower shadow.
  • The fifth day is a strong black with an open below the previous day’s body.

Bearish Ladder Top Meaning:

The Bearish Ladder Top's first three days are robust white candlesticks with successive higher openings and closes. The fourth day is a short white candlestick that begins and trades downward, leaving a lengthy lower shadow before closing at a new high. The fifth day is a large black candlestick with a body gap between it and the fourth.

Most traders and investors are optimistic as the market emerges from a bullish trend. They continue to issue purchase orders because they believe the market is bound for new highs, which stimulates the market even more.

When the fourth candle is ready to form, however, the bullish attitude begins to dissipate. Investors and traders are concerned that the positive trend has reached its limit, implying that a correction is on the way. This causes a tsunami of selling orders to strike the market, causing it to decline somewhat.

As long as purchasing pressure remains high, buyers will return, and the market will close higher for the fourth candle in a row. While this is fantastic news for bulls, the fact that sellers were given a chance to sabotage the bullish trend is a concerning warning.

The concern of an impending bearish reversal begins to materialize when the market opens with a negative gap the next candle, adding to the selling pressure. As the candle closes in the negative zone, more traders and investors become aware that the bullish trend is in jeopardy. The negative trend has officially begun when their sell orders hit the market!

Trader’s Behavior

The bulls are pleased since there has been a significant upswing for some time. Then there's a nice increasing trend. Prices begin to trade below the starting price, almost touching the previous day's new low, but then close at a new high. This behavior serves as a caution to bulls, indicating that the market will not continue to rise indefinitely. The bulls may be compelled to rethink their holdings and start taking gains as a result. This is the explanation for the downward gap on the last day of the pattern, as well as the significantly lower close. There has most likely been a trend reversal. On the next day, however, a confirmation will be requested.

How to Trade the Bearish Ladder Top

When some traders learn about candlestick patterns such as the bearish ladder top, they rush to the markets to capitalize on their newfound knowledge.

Candlestick patterns, on the other hand, typically require the application of filters in order to be worth our time, as more experienced traders would point out! To make the pattern lucrative, we just need to filter out enough unprofitable transactions.

You may now apply a variety of filters and conditions. However, in this section of the tutorial, we'd like to show you two types of filters that have shown to be quite effective in our own trading techniques over time. Naturally, we anticipate that these filters will function well with the bearish ladder top.

We strongly advise you to do backtesting to figure out what works best with your market and period.

Now, let’s have a look at the filters!

Volatility Filters

Volatility filters are one of the most prevalent types of filters, and they've showed potential in virtually all markets in our research. Overall, this isn't surprising, given that volatility is inherent in everything that moves.

Now, certain patterns and tactics will gain enormously from excessive market volatility, while others will have the exact opposite effect. It varies greatly based on the market and the timing, so you'll have to experiment to see what works best with your parameters.

With this in mind, let's take a look at two popular volatility filters with which we've had tremendous success!

The ADX is a trading indicator that determines how strong a trend is. A number of less than 20 indicates a quiet market, while a rating of more than 25 indicates a moving market. More information on the ADX indicator may be found in our ADX indicator guide!

Average True Range ATR- The Average True Range indicator returns the average of the true range x-bars, as you may expect from its name. While it is a fairly basic indicator, it may be quite useful in estimating market volatility levels. This is usually done by comparing the current candle's real range to the average true range. When it's bigger, the market is more volatile, and vice versa. Our average true range article delves deeper into how the indicator is utilized in trading!


Many traders have never explored the possibility that markets aren't always equally bullish or bearish. Certain days of the week, portions of the month, and so on, for example, are more or less bullish.

Now, we can leverage the fact that we know when a market is more or less likely to be bullish or bearish to our benefit. Taking a trade based on the bearish ladder top, for example, would be a terrible choice if we're approaching a really bullish time. If the market is starting a bearish trend, on the other hand, it may be a favorable moment to enter.

The following are the several perspectives on seasonality that we use:

Markets have certain weekdays that are more or less bullish or bearish on a regular basis.
D the month- There may be more or fewer bullish periods throughout the month.
Time of day - Some patterns are only effective in the early or second part of a trading session.

Sell/Stop Loss Levels
The latest closure is used to establish the confirmation level. For confirmation, prices must fall below this threshold.

The latest high is used to establish the stop loss level. If prices rise instead of falling after a bearish signal and close or reach two successive daily highs above the stop loss level while no bullish pattern is visible, the stop loss is activated.

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