When witnessing a ladder bottom candlestick signal you will notice that the downtrend finishes with four consecutive black (or red) candles. Each black (or red) candle closes lower than the previous day. The fourth day is different since it opens and trades higher during the day and closes the day low. The following day opens higher than the open of the previous day, there is a gap up, and it continues to head up in direction all day. The final day of the signal closes higher than the trading range of the past three days.
Criteria for the Ladder Bottom Signal
- Similar to the three black crows pattern, the beginning of the signal has three black (or red) candle days, each with lower opens and closes than that of the previous day.
- The fourth day resembles a reverse hammer signal, which opens and then trades up during the day before it then closes on its low.
- The final day opens above the open of the previous day’s open. There is a gap up and it continues upward for the rest of the day. It finally closes above the trading range of the previous three days.
Pattern Psychology Behind the Ladder Bottom Candlestick Signal
After a strong downtrend is in effect for a period of time, there is a day when prices try to climb back up to the previous day’s high. This gets the bears attention even though it closes on the low that day. When it opens up much higher the following day, the bears start to scramble to cover, and the bulls begin to take control. If volume increases noticeably on the final day, then that is a good indication that the bulls and the bears exchanged their positions.
Candlestick patterns identify where money is flowing in and out of stocks/sectors. Being able to identify and understand the investor psychology that creates the candlestick signals produces a huge advantage. It allows an investor to participate in stock investments that have an extremely high probability of moving in the right direction.
Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.
Please continue to learn how to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets.