How to Use Tower Candlestick Patterns for Trading

TL;DR

Tower candlestick patterns indicate market momentum reversals: a tower top signals a shift from bullish to bearish momentum, while a tower bottom indicates a shift from bearish to bullish. For effective trading, combine these patterns with support and resistance levels, and consider using the 10-day simple moving average for trend confirmation.

Transcript

Take a look at this chart, right here. This price action sequence forms one of the most reliable candlestick patterns. This is called a tower top, and its bearish equivalent is a tower bottom. A cringe name, I know, but, nonetheless, let me demonstrate you just how powerful this pattern is. The tower top is a reversal pattern. Typically, you’ll see... Read More

Key Insights

• 🗼 Tower top and tower bottom patterns are reliable candlestick patterns that indicate a reversal in market momentum.
• 🎚️ These patterns should be used in conjunction with support and resistance levels or supply and demand areas for better accuracy.
• 📈 The 10 simple moving average can be used as a trend-following tool and to manage trades.
• 🤩 Pivot points are useful for determining key support and resistance levels and can be combined with candlestick patterns for more precise entries and exits.
• ✋ Trading tower candlestick patterns on higher time frames reduces stress and increases the accuracy of trades.
• ❓ Not every pattern will be a textbook example, but imperfect setups can still be profitable.
• 🤩 Success rates can increase by taking trades from key support and resistance levels.

Questions & Answers

Q: What is a tower top pattern?

A tower top pattern consists of a long bullish candlestick followed by smaller candlesticks showing consolidation, and completed with a large bearish candlestick. It indicates a change in momentum from bullish to bearish.

Q: How can I find tower top patterns?

Look for two opposite-color big candlesticks with a small range between them, usually consisting of three to five small candlesticks. This consolidation period signals a lack of momentum and is an indication of a potential tower top pattern forming.

Q: What is the psychology behind a tower top pattern?

After a bullish trend, the last big bullish candlestick shows that buyers are in control. Consolidation follows, indicating a loss of momentum. Then, a big bearish candlestick forms, showing that sellers have taken control and the trend has changed.

Q: How can I trade tower candlestick patterns?

Several entry methods can be used, depending on your risk profile. You can enter aggressively right after the large bullish or bearish candlestick forms, or wait for confirmation from another bullish or bearish candlestick. Stop loss levels can be set above or below the pattern, and profit targets should aim for at least a 2:1 reward-to-risk ratio.

Summary & Key Takeaways

• Tower top pattern: A long bullish candlestick is followed by smaller candlesticks showing consolidation, then completed with a large bearish candlestick, signaling a change from bullish to bearish momentum.

• Tower bottom pattern: A long bearish candlestick is followed by smaller candlesticks showing consolidation, then completed with a large bullish candlestick, signaling a change from bearish to bullish momentum.

• These patterns should be used in conjunction with support and resistance levels or supply and demand areas to confirm trading opportunities.