Trading on spinning tops presents challenges due to their ambiguous nature. Determining stop loss and take profit levels can be difficult, as these patterns offer limited guidance. Traders and investors should seek further confirmation from subsequent candles, or complementary technical indicators, to substantiate the possibility of a trend change.
Spinning top candlestick pattern summed up
Because of this relatively small change in market direction, this candlestick is known as a continuation pattern. Spinning tops are a common candlestick pattern, which means they work best in conjunction with other forms of technical analysis. Indicators or other forms of analysis, such as identifying support and resistance, may aid in making decisions based on candlestick patterns.
What does the Spinning Top candlestick signify?
This pattern is characterized by very long upper and lower wicks, and the open and close prices are the same or nearly the same, resulting in an extremely small or nonexistent body. The Long-legged Doji is a variant of the Spinning Top and shares its connotations of market indecision and potential trend reversals. Traders often seek confirmation signals to validate the potential reversal hinted at by a Spinning Top Candlestick. This indifference towards the candlestick’s color underscores the pattern’s primary implication of market indecision. Now, another great way to see whether a spinning top is worth taking or not, is by using some sort of filter that measures overbought and oversold conditions.
How To Use Spinning Tops In Your Trading
The price attempts to breakdown below the swing low, but forms a Spinning Top candlestick instead. This was followed by a pause where the formation of Spinning Top candlesticks indicated low volatility. This is why it is not a good idea to use the Spinning Top candlestick as a trading signal on its own. More often than not, after forming the Spinning Top candlestick, the price will pause for a while or have a small reaction, only to make a trending move again. You can practise trading using the spinning top chart pattern with an IG demo account.
A spinning top is a one-candle reversal pattern that signals uncertainty in the market, and is preceded by either an uptrend or downtrend. As to its appearance, a spinning top has a small body that closes in the middle of the candle’s range, with long wicks to both sides. As a neutral candlestick pattern, the spinning top can be formed in charts in different scenarios.
This showed the tug of war between the bulls and bears taking control of price action. The most common method used by technical traders to confirm a trend reversal is waiting for the formation of the succeeding candle. Using the example above, the succeeding candle should close lower than the wick of the Spinning Top. Without this confirmation, the signal of trend reversal may not be established, and uncertainty remains in the market. This resulted in the closing price reverting back/very close to the opening price. Join us as we look into this valuable candlestick formation and use its potential to help you capture opportunities on the markets.
Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. Additionally, fundamental analysis can provide context that can influence the interpretation of a Spinning Top.
An exit signal would be generated when you get a close below (for bull flags) or above (for bear flags) the 20 SMA. In this strategy, we will incorporate the Spinning Top candlestick, into the classical flag pattern. The Spinning Top candlestick is a pattern, that has to be viewed in the context of the overall market conditions.
- – and secondly, that a reversal signal could be near… not necessarily on the next candle, but within a short space of time on the time-frame you’re watching.
- This arrangement suggests extreme indecision in the market, with neither buyers nor sellers able to gain the upper hand.
- The Spinning Top candlestick is a unique pattern in technical trading.
- Eventually, the battle comes to a stalemate with neither side able to get the edge on the other.
By concentrating on the tops that form in and around technical levels – supply and demand zones, support and resistance levels, fibs, etc.. But they also indicate one side of the market (bulls or bears) believe the current price is too high or too low. You’ll only lose money and wonder why they didn’t work as expected. The best way to use tops is as an early warning signal the current move could be coming to an end, and price may soon reverse or retrace slightly.
Live traders should not look to enter a trade immediately after the Spinning Top has formed, but rather delay the trade to wait for confirmation. Confirmation can come from technical indicators, fundamental factors or oscillators as seen using a stochastic oscillator. The stochastic re-confirms a short entry as indicated by the blue circle. For instance, if a spinning top appears at the downtrend’s end, suggesting a potential reversal, traders might use the stochastic oscillator to validate the signal.
If the RSI shows the market is overbought after a Spinning Top forms in an uptrend, it provides additional confirmation of a possible bearish reversal. For example, traders might use momentum indicators like the RSI to confirm a potential reversal signaled by a Spinning Top. This pattern signals that buyers pushed prices up during the session, but were unable to sustain these levels, resulting in prices closing where they opened.
You’ll see how other members are doing it, share charts, share ideas and gain knowledge. Spinning tops may not mean anything the day they form, but they signify a significant trend reversal. Trading with the Spinning Top candle involves understanding how it is formed and where it sits in relation to the overall market trend. The example below goes through identification, confirmation and execution of a practical forex trade using the Spinning Top.
You’ll see that they occurred at the top of a rising wedge pattern. A major bearish engulfing pattern occurred when the price reached the rising wedge’s apex. In the EUR/NZD chart above, the Spinning Top candle (bearish) appears at the top of an uptrend – highlighted by the gold trend line. The indecision from buyers and sellers is apparent and leads to a reversal in trend direction.
For example, upcoming economic events or earnings releases can create market indecision, leading to the formation of Spinning Tops. Traders should consider these fundamental factors when interpreting Spinning Top patterns. The overall market trend, the occurrence of similar patterns, and the trading volume around the time the Spinning Top forms all influence its interpretation. Conversely, a Spinning Top at the end of a downtrend could signal an opportunity to exit short positions or enter long positions, anticipating a possible rise in prices. Wealth managers and traders can use the Spinning Top Candlestick as a tool to confirm potential trend reversals in the market.
The upper shadow tells us that the bulls did attempt to take the prices of the stock higher, but they failed in doing so. For instance, if the open price is Rs. 320, and the closing price is Rs. 324, then this will lead to the creation of a small real body as a 4-point move is not much. The upper shadow connects the highest price of the day with the real body. If the closing price is above the opening price, then normally a green or hollow candlestick (white with black outline) is shown. If the opening price is above the closing price then a filled (normally red or black) candlestick is drawn.
A spinning top occurring at the peak of an uptrend can signify that the bullish is losing track and the trend is about to reverse. However, when a spinning top is at the base of a downtrend, it is a sign that the bearish is losing control, and the bullish may take control. It means that a spinning top may alert about an upcoming crucial change in a trend. However, a confirmation from the next candle is key to determine whether the prices will drop after the uptrend. This information has been prepared by IG, a trading name of IG Australia Pty Ltd. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.
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The Dragonfly Doji represents a session where sellers pushed prices down, but buyers managed to push the prices back up to the opening level. Market indecision, while showing a lack of clear direction, can often precede significant moves in the market. For example, in quite a lot of our strategies we use the day of the week to ensure that we don’t take trades on those days where the strategy hasn’t worked well historically.
The significance, though, has to do with the length and their relationship to each other. In this article, we look at the specifics of the spinning top candlestick pattern, explore its definition, formation, and significance in technical analysis. The next period opens lower and closes even lower, confirming a bearish reversal. Acting on this confirmation, you could have entered a short position at the opening of this confirming period, potentially capturing profits from the ensuing downtrend.
As always, we must wait for price action signals – like pin bars, engulfs, etc – to confirm price is about to move away. Spinning tops, even though they can signal a reversal, often don’t – sometimes price simply stalls or retraces slightly after they form, hardly reversing an inch. Needless to say, we want to avoid these tops and focus on the ones that have the best chance of causing a reversal. Having a detailed knowledge of candlesticks and what they signal is one of the key requirements for successful trading. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.
For instance, a reversal anticipated after an uptrend spinning top should see prices declining in the subsequent candle. Conversely, traders must exercise caution and await further confirmation signals if the expected reversal fails to materialise. A confirming candlestick would typically stay within the established sideways channel in a ranging market, reinforcing ongoing indecision. Over time, individual candlesticks form patterns that traders can use to recognise major support and resistance levels.
As previously discussed, spinning tops are most effective when complemented with other patterns and indicators. Therefore, seeking alternative sources for trade parameters is advisable. However, this approach may prove too rigid or expose traders to excessive risk, depending on the pattern’s formation. A Spinning Top signifies market indecision, which can precede a potential price reversal or a continuation, depending on the overall trend and subsequent candles. The Spinning Top candlestick is a unique pattern in technical trading.
Assessing the reward potential of a spinning top trade is also difficult since the candlestick pattern doesn’t provide a price target or exit plan. Traders need to utilize other candlestick patterns, strategies, or indicators to find a profitable exit. Spinning tops are a sign of indecision in the asset; the long upper and lower shadows indicate there wasn’t a meaningful change in price between the open and close. The bulls sent the price sharply higher and the bears sent the price sharply lower, but in the end, the price closed near where it opened.
Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. If taking trades based on candlesticks, this highlights the importance of having a plan and managing risk after the candlestick. A spinning top that occurs at the top of an uptrend could be a sign that bulls are losing their control and the trend may reverse.