Ladder top is a bearish trend-reversal pattern indicating the reversal of an existing uptrend. It is a five candlestick pattern which is less popular than bullish ladder bottom pattern and is somewhat similar to bearish deliberation candlestick pattern. Bearish ladder top is a moderately reliable pattern.
The requirements of bearish ladder top pattern include,
- The pattern should form at the top of a strong uptrend.
- The first three days are bullish days noticeable with long white/colorless candlesticks that close above the previous ones. This formation is similar to three white soldiers pattern which is bullish and formed at the bottom of a downtrend.
- The fourth day is also bullish with a small real-body candlestick with a long lower shadow; it is a hanging man candlestick.
- The fifth day is a bearish day, noticeable with a long bearish (dark or colored) candlestick which opens below the real-body of the fourth day candlestick.
Ladder top candlestick formation occurs when bulls lose control over the markets. The bullish candlestick on the first three days indicates that the bulls are controlling the market but the hanging man candlestick creates doubts on their minds. Traders start to sell-off their positions but the increased buying activity at the end of the day helps to close the day on a new high. The bearish candlestick on the fifth day indicates that the bears are taking control of the market and a new downtrend is beginning.
With ladder top candlestick pattern, trades should wait till the price crosses the low of the fifth candlestick.
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