BULLISH LADDER BOTTOM
Definition
This is a five-candlestick pattern that starts with three strong black candlesticks. The downtrend continues with a lower close on the fourth day. On the fifth day, there is a higher gap at the open, and it closes significantly higher than the previous one or two days. This may suggest a bullish reversal.
Recognition Criteria
1. The market is characterized by a prevailing downtrend.
2. Three strong black candlesticks occur much like the Three Black Crows pattern.
3. The fourth black candlestick closes also lower but has a long upper shadow.
4. The fifth day is a strong white with an open above the previous day’s body.
Pattern Requirements and Flexibility
The first three days of the Bullish Ladder Bottom pattern consist of strong black candlesticks with consecutive lower opens and lower closes. The fourth day features a short black candlestick that opens higher and trades higher, leaving a long upper shadow, then closes at a new low. The fifth day is a strong white candlestick that creates a body gap with the fourth day.
Trader’s Behavior
After a prolonged downtrend, the bears are content. We observe a significant downward move, but prices begin trading above the opening price, nearly reaching the previous day's high before closing at a new low. This action serves as a warning to short-sellers, indicating that the market will not decline indefinitely. Short-sellers may reassess their positions and potentially close them the following day if profits are substantial. This activity causes the upward gap observed on the last day of the pattern, with a considerably higher close. If the volume is high on the last day, a trend reversal is likely, although confirmation will still be necessary on the following day.
Buy/Stop-Loss Levels
The confirmation level is set at the last closing price. For confirmation, prices need to surpass this level.
The stop-loss level is set at the last low. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.