Tower Bottom

What is a Tower Bottom Pattern?

The Tower Bottom is a multi-candle bullish reversal pattern that forms at the end of a downtrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →. It resembles a valley bounded by two towers: a long bearish candle on the left (the left tower), a series of small consolidating candles at the bottom (the base), and a long bullish candle on the right (the right tower). It represents a complete structural shift from panic selling to aggressive buying.

Pattern Structure

To identify a valid Tower Bottom:

1. Prior DowntrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →: The market must be in a major downward trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry →.
2. Left Tower: A long, healthy bearish (red) candle showing strong downward momentum.
3. Consolidation Base: A series of 2 to 5 small-bodied candles (spinning tops, Dojis) that move sideways, establishing a horizontal supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → floor.
4. Right Tower: A long, healthy bullish (green) candle that breakoutBreakoutA price movement through an established support or resistance level. A breakout is often accompanied by increased volume, signaling strong momentum.Read full glossary entry → of the consolidation and matches or exceeds the height of the left tower.

Market Psychology

• Phase 1 (Panic): The left tower represents aggressive capitulation. Sellers push prices down rapidly, creating panic.
• Phase 2 (Absorption): At the bottom, price stops falling and moves sideways. VolumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry → dries up. Sellers have run out of inventory, and buyers are quietly absorbing whatever is left.
• Phase 3 (Expansion): The right tower signals that buyers have completed their accumulationAccumulationA phase in the market cycle where institutional traders buy large quantities of an asset quietly over a period of time, keeping the price relatively r...Read full glossary entry → and are bidding prices up aggressively. Short-sellers are squeezed, fueling the bullish expansion.

Trading Setup

• Entry: Buy on the close of the right tower candle, or enter on the pullbackPullbackA temporary price pause or moderate retracement against the primary trend direction.Read full glossary entry →/next candle close.
• Stop-Loss: Place the stop-loss orderStop-Loss OrderAn order placed with a broker to sell an asset when it reaches a specific price, designed to limit a trader's loss on a position.Read full glossary entry → just below the lowest low of the consolidation base.
• Take Profit: Target key swing highs or resistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → levels, targeting at least a 1:2 risk-to-reward ratioRisk-to-Reward RatioA measure used to compare the potential profit of a trade against its potential loss. A ratio of 1:2 means the trader is risking $1 to potentially mak...Read full glossary entry →.

Confirmation Rules

• The right tower must be a healthy candle.
• Rising volumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry → can be considered as an added factor for better working of the pattern.
• Look for former supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → zones to align with the base of the tower.

Common Mistakes