Ladder Bottom/Top

What Is Ladder Bottom/Top?

Ladder bottom/top are two types of candlestick patterns used to indicate a reversal in the price direction of an asset.

The ladder bottom is a five candle reversal pattern that indicates a rise is commencing following a decline and is created by a series of lower closes, followed by a sharp price increase. The ladder top, on the other hand, is a five candle bearish reversal pattern that is composed of a series of higher closes, followed by a sharp price drop.

Understanding Ladder Bottom/Top

The ladder bottom and top are theoretically reversal patterns, although they don't always act like that. According to the Encyclopedia of Candlestick Charts, by Thomas Bulkowski, the patterns only act as reversal patterns about 56% of the time. Therefore, traders may wish to trade breakouts from the pattern — price moves above or below the pattern high or low, respectively — in either direction.

The bottoming pattern tended to show the best performance when the price was in an overall downtrend, and breakouts higher or lower tended to work out about equally.

The Ladder Bottom

The ladder bottom is a bullish reversal pattern with the following characteristics:

The theory behind the pattern is that a downtrend loses momentum with an inverted hammer candle that creates an opening for bulls to take over and reverse the trend. In addition to not being common, the ladder bottom tends to be mediocre at predicting a reversal. However, it does tend to produce price moves of 6% or more in the breakout direction within the 10 days following the pattern (for stocks).

Traders should use the ladder bottom in conjunction with other technical indicators to predict bullish reversals. If the pattern does occur, traders may want to exit any short positions or adjust their stop-loss levels, but betting on a long position may require additional confirmation through other chart patterns or technical indicators.

The Ladder Top

The ladder top is a bearish reversal pattern with the following characteristics:

The theory behind the pattern is that an uptrend loses momentum with a hammer or harami candle that creates an opening for bears to take over and reverse the trend. As with the bottoming pattern, a breakout from the ladder top pattern tends to produce a decent-sized move in the days following the pattern, but the breakout could occur in either direction. It won't always be a reversal pattern.

Ladder Bottom/Top Example

Apple's daily chart shows a large ladder bottom pattern. There are three long red (down) candles, followed by an inverted hammer and a large green (up) candle. From high to low, this particular pattern covered more than a 12% price area.

Image by Sabrina Jiang © Investopedia 2021

Following the first (green) candle, the price moved up initially but didn't move above the high of the pattern (candle one). It then briefly moved below the low of the pattern, indicating a further slide. The price quickly recovered though and moved above the high of the pattern, continuing to the upside.

Entry points and stop losses could be placed at various locations within the pattern. A long could be taken following the green candle in a bottoming pattern, with a stop loss below the pattern low or below the green candle, for example.

Ladder Bottom/Top vs. Three White Soldiers

The three white soldiers pattern is created by three large white (up) candles in a row, where each opens within the real body of the last candle, but then closes higher. It shows strong bullish sentiment and traders typically look for it following a decline.

It is possible that a ladder bottom could transition into a three white soldiers if two more long up candles follow the white candle (fifth candle) in the ladder bottom.

Ladder Bottom/Top Limitations

The ladder bottom and top, like other candlestick patterns, are typically best used in conjunction with other forms of technical analysis, such as price action, larger chart patterns, or technical indicators.