Ladder Top Pattern – Bearish Reversal

Definition

The Ladder Top is a rare bearish reversal pattern typically found at the end of a strong uptrend. It consists of at least three long-bodied candles (often Marubozu or large bodies with little to no wicks) forming a ladder-like structure, followed by a bearish gap and a closing candle lower. The gap signifies a fundamental shift in market sentiment.

How to Identify

• Candle 1: Long bearish body (often a bearish Marubozu) closing near its low.
• Candles 2 and 3: Similar long bearish bodies, each opening near or at the previous close, creating steps.
• Final candle (candle 4): Opens with a gap below the low of candle 3 and closes weakly (small body or long lower wick), confirming reversal.
• Volume often spikes during formation.

How to Trade

• Entry: After the confirmation candle closes, sell at market or wait for a minor pullback into the gap zone.
• Stop Loss: Place above the high of the third candle (highest step) or above dynamic resistance (e.g., EMA 20).
• Take Profit: Target the nearest swing low before the uptrend or previous buy-side liquidity zone. Use risk:reward 1:2 or 1:3.

Real Example: On EUR/USD H4, after a strong rally, three long bearish candles with a gap appear alongside volume spike. Entry on confirmation candle, stop loss above third candle high, target lower liquidity. Price dropped over 100 pips.

Common Mistakes

• Confusing with Three Black Crows (no gap).
• Trading in unclear trends or low volume.
• Setting stop loss too tight, getting stopped out by minor pullback.
• Not confirming with other signals like RSI divergence or SMC concepts (Order Block, FVG).