BULLISH LADDER BOTTOM
Definition
This is a five candlestick pattern that starts with three strong black candlesticks. The downtrend continues with the fourth lower close. The next day gaps higher and closes much higher than the previous day or two. This may imply 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 are strong black candlesticks with consecutive lower opens and lower closes. The fourth day is a short black candlestick, but it opens higher and trades higher, leaving a long upper shadow, then closes making a new low. The fifth day is a strong white candlestick that makes a body gap with the fourth day.
Trader’s Behavior
There is a considerable downtrend for some time and the bears are happy. Then we see a good downward move. Prices start trading above the opening price and almost reaching to the new high of the previous day, but then they close at another new low. This action is a warning for shorts telling them that the market will not go down forever. The shorts may then be forced to reevaluate their positions and they may start closing their positions on the next day if profits are good. This act is the reason behind the upward gap we see on the last day of the pattern and also the close is considerably higher. If the volume is high on the last day, a trend reversal has probably occurred. However, a confirmation will still be required on the next day.
Buy/Stop Loss Levels
The confirmation level is defined as the last close. Prices should cross above this level for confirmation.
The stop loss level is defined as the last low. Following the BUY, if prices go down instead of going up, and close or make two consecutive daily lows below the stop loss level, while no bearish pattern is detected, then the stop loss is triggered.