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Ladder Bottom Candle Pattern
In my book, Encyclopedia of Candlestick Charts
, pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.
The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.
The ladder bottom looks like a simple candle and it is, but the requirements still make it rare. Out of over 4.7 million candle lines, I found 451 ladder bottoms. The five candle lines are responsible for that. I liken it to flipping a coin and having it show heads five times in a row.
Ladder Bottom Candlestick: Important Results
Theoretical performance: Bullish reversal Tested performance: Bullish reversal 56% of the time Frequency rank: 80 Overall performance rank: 41 Best percentage meeting price target: 27% (bull market, up breakout) Best average move in 10 days: -7.07% (bear market, down breakout) Best 10-day performance rank: 8 (bear market, down breakout) All ranks are out of 103 candlestick patterns with the top performer ranking 1. “Best” means the highest rated of the four combinations of bull/bear market, up/down breakouts. The above numbers are based on hundreds of perfect trades. See the glossary for definitions. |  Ladder Bottom |
Ladder Bottom Candlestick: Discussion
The ladder bottom acts in theory as it does in reality, as a bullish reversal of the downtrend but only 56% of the time. I consider that “near random,” but performance may be a function of height, as I explained in the introduction.
What I find startling is the 27% in which the post breakout trend meets the price target. The measure rule, which determines a price target, says that the height of the candle pattern added to the top or subtracted from the bottom of the candle pattern gives you the target. Of course, height is again the culprit. Since this candle is tall, it would be difficult to meet the full height-based price target without encountering a minor high or low along the way.
Ladder Bottom Candlestick: Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Five. |
| Price trend leading to the pattern | Downward. |
| Configuration | Look for a series of 5 candles in a downward price trend. The first three days should be tall black candles, each with a lower open and close. The 4th day should be a black candle with an upper shadow, and the last day should be a white candle that gaps open above the body of the prior day. |
Ladder Bottom Candlestick: Three Trading Tidbits
- Use candle color as the entry signal in a bull market — page 467.
- Ladder bottom candles taller than the median show price that moves farther after the breakout than those shorter than the median — page 462-463.
- Volume gives performance clues — page 464.
Ladder Bottom Candlestick: Example
The chart shows a ladder bottom forming in Agrium on the daily scale. In this example, three tall black candles appear in a downward price trend, each with a lower open and close (lower bodies). Day 4 is a black candle of any size with an upper shadow. Some sources I saw require a tall upper shadow but this pattern is too rare to add such a complexity. The last day is a white candle in which the opening price gaps above the top of the prior body. Some sources also require the last day to be a tall candle, but I do not.
As the picture shows, this ladder bottom acts as a bullish reversal of the downward retrace in an upward price trend. Got that? In other words, the primary price trend is upward. Then price begins a downward retrace, and at the bottom of the retrace, the ladder bottom appears. When the candle pattern completes, price breaks out upward and rejoins the upward trend.
I have found that the best performing candlesticks are those that rejoin an existing price trend after a retracement. This is an example of that situation, and one you should keep in mind if you trade candles.
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