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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
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.
The ladder bottom acts as a bullish reversal 56% of the time, so it is close to random. The overall performance ranks 41, so the post breakout trend is not exceptional either. You might
think that this candle adds to a growing list of candles that act about randomly, but that may not be the case with this one. Often, the candle is quite tall, and I measure the breakout
as being a close above the top or below the bottom of the candlestick pattern. Thus, price has to climb a long way to stage an upward breakout, whereas downward breakouts should be easier to achieve
since price is often closer to the bottom than the top. Besides, each candle pattern teaches us something about the market. Okay, so I just made that last bit up...
Important Results
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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.
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 Ladder Bottom
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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.
The best move after 10 days is a drop of 7.07% in a bear market, ranking 8th for performance. I consider moves of 6% to be good, so this is very good. In fact, upward breakouts in a
bear market show average rises
10 days after the breakout of 6.76%, which is also a good score. It appears that if you are currently in a bear market then the ladder bottom is the candlestick of choice...if you can
find it.
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. |
Three Trading Tidbits
If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book
where the tips appear.
- 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.
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.
-- Thomas Bulkowski
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