The tower top is a top reversal pattern. It occurs while the market is in an uptrend and then a strong white candlestick (or a series of white candlesticks) appears. The market’s rise then slows and the highs start falling. The tower top is completed with the appearance of one or more large black candlesticks (see Exhibit 6.58). This pattern’s long candlesticks resemble tall towers-hence the name.
The tower bottom develops at low price levels. After one or more long black candlesticks there is a short-term lull. Then one or more large white candlesticks emerge. This creates a bottom with towers on both sides (see Exhibit 6.59). That is, long candlesticks on the way down and long candlesticks on the way up.
Exhibit 6.60 shows that a group of strong white candlesticks appeared from first quarter until the second quarter of 1987. Then a series of long black candlesticks surfaced. The tall white candles formed the left tower while the long black ones the right tower. The three black candlesticks were also three black crows.
Exhibit 6.61 illustrates two patterns-the tower bottom and a rare bottom reversal which has not been discussed called the unique three river bottom. First, I will review the tower bottom. A long black candlestick on August 28, some sideways action via narrow candlesticks, and the long white candlestick September 7 created a tower bottom. The steep price descent on August 28 erected the left tower and the sharp rally, which commenced September 7, erected the right tower. Notice the three candlesticks numbered 1, 2, and 3 on August 28 through August 30. These comprise the extremely rare unique three river bottom (see Exhibit 6.62). Its closest relative in candlesticks is the evening star pattern. The unique three river bottom is a bottom reversal pattern. Its first line is an extended black candlestick, the second line is a black real body candlestick that closes higher than the first candlestick’s close, and the third line is a very small real body white candlestick. This last line displays a market whose selling pressure has dried up.
The closest analogy in Western technical terms to the tower reversals would be the spike, or V, reversals. In the spike reversal, the market is in a strong trend and then abruptly reverses to a new trend. The tower top and bottom are similar to the dumpling top and the fry pan bottom. The major differences are that the towers have long real bodies before and after the market turns and the dumpling top and fry pan bottom have windows. The towers usually also have more volatile candlesticks than the dumpling tops or fry pan bottoms. Do not worry about whether a top is a tower top of a dumpling top, or if a bottom is a tower bottom, or a fry pan. All these patterns are viewed as major reversal patterns.