The Tower Bottom pattern is a technical analysis pattern that is used in Forex trading to predict potential price reversals. It was first introduced by Linda Bradford Raschke, a well-known trader and author, in the 1980s.
The Tower Bottom pattern is characterized by a series of progressively lower swing lows, with each swing low being followed by a rally that falls short of the previous swing high. This creates a series of “steps” or “towers” that resemble the shape of a staircase.
What is the Tower Bottom Pattern?
The Tower Bottom pattern is based on the idea that when price reaches a certain level and is unable to break through it, traders will begin to take profits and sell their positions, leading to a downward price reversal. The opposite of the Tower Bottom is the Tower Top pattern.
Here are three key points to support the strategy of the Tower Bottom pattern:
- The pattern is typically seen as a bearish reversal pattern, indicating that a downtrend may be coming to an end and that a potential uptrend may be on the horizon.
- The pattern is often accompanied by a decrease in volume, indicating that traders are losing interest in the current trend and may be less likely to continue pushing prices higher.
- The pattern is often seen as a sign of market indecision, as traders are unable to push prices higher or lower, leading to a potential change in direction.
Tower Bottom Pattern Strategy
Buy Signal
- A series of progressively lower swing lows, creating a “staircase” pattern.
- A decrease in volume, indicating that traders are losing interest in the current trend.
- A breakout above the previous swing high, indicating that traders are now willing to push prices higher.
- Confirmation of the buy signal through the use of other technical indicators, such as moving averages or the Relative Strength Index (RSI).
Benefits of using the Strategy
- It can provide a clear indication of potential price reversals, allowing traders to enter or exit positions at strategic points.
- It can be used in conjunction with other technical indicators to provide further confirmation of potential trend changes.
- It can help traders to identify potential entry and exit points in the market, allowing them to place trades with confidence.
Conclusion
The Tower Bottom pattern is a valuable tool for traders looking to identify potential price reversals in the Forex market. By analyzing the shape of the pattern for example, we can see a clear series of progressively lower swing lows, forming a “staircase” pattern. The decrease in volume and the breakout above the previous swing high are also strong indicators of a potential uptrend, we can see a similar “staircase” pattern forming, with progressively lower swing lows and a decrease in volume. The breakout above the previous swing high confirms the buy signal, and lastly we can see a more subtle Tower Bottom pattern forming, with slightly lower swing lows and a slight decrease in volume. The breakout above the previous swing high, combined with the use of other technical indicators, such as the RSI, helps to confirm the buy signal. the Tower Bottom Pattern is a strong indicator in spotting trend reversals in the market to make it more reliable and accurate use atleast one confirmatory indicator such as RSI.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.
