After a decline where bearish candles step down like a ladder, lower and lower, the fourth candle finally lights an upper shadow. The fifth gaps up and turns bullish, signaling a sold-out bottom. A five-candle reversal pattern.
The ladder bottom is a five-candle bottom reversal pattern that appears at the tail end of a decline.
Four bearish candles step down the rungs of a ladder one at a time, lowering both their lows and their opens. The first three are sold off in orderly fashion, like three black crows, and the downward momentum looks rock solid.
But on the fourth candle, an upper shadow that had never appeared before lights up. For the first time, a hint of short covering mixes into candles that had been pure selling.
Then comes the fifth. Here the price opens with an upward gap as a bullish candle and closes above the body of the fourth. The candles that kept descending the ladder reverse, as if missing a step on the final rung.
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The word "ladder" refers to the orderly descent, stepping down the rungs one at a time. But the real protagonist is the moment that orderliness first breaks on the fourth candle.
A market that fell perfectly for three candles shows a fray on the fourth in the form of an upper shadow, then flips inside out on the fifth by gapping up. It is a sold-out reversal that arrives at the end of a descent that was too perfect.
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