Spinning Top candlestick patterns provide valuable supporting information to a trading strategy. It indicates uncertainty in the market. You may get a spinning top candlestick pattern within an uptrend, downtrend and/or consolidation signifying possible reversals.
Spinning tops is a form of candlestick pattern that have similarly sized upper and lower wicks that are usually larger than the body and will often be a little bit more indecisive. Therefore, like the doji, it’s also called an indecision candle which reveals a tight battle between bulls and bears.
It will not give you a clear signal as in the case of a Marubozu and engulfing candlestick pattern.
This type of indecisive candle is formed when the buyers push the price up, and sellers push the price down, but ultimately the closing price ends up very close to the open. In other words, the bulls push the price sharply higher and the bears push it sharply lower, but in the end, the price closes near where it opened.
You can call it an indecision candle where the power of buyers and sellers are almost equal, this means no one is in control.
In this type of cases, undecided traders are waiting on the sideline to see who wins the fight between buyers and sellers.
In general, spinning tops indicate a change in present trends in price. Therefore, it’s important to recognise it in price action.
Two things are quiet prominent in spinning top;
- The candle have a small body
- The upper and lower wick is almost equal
Small real body in the spinning top indicates the open price and close price are quite close to each other.
As open and close price prints are near each other, the color of the spinning top’s candle isn’t important. If a spinning top is found within a consolidation market, it’s considered as neutral. But seen after an uptrend, then it’s a signal of a market top; seen after a downtrend, it could signal a market bottom.
The upper shadow connects the high price to the body of the candle. The length of the upper shadow indicates how far the bulls tried to take the price higher but failed to do so.
Likewise the lower shadow connects the real body to the low price of the session. The length of the lower wick tells us that the bears tried to take the price lower, however, they were not really successful in their endeavor.
Also Read: Understanding Basic Candlestick Charts
It means neither the bulls nor the bears were able to dominate the market.Thus it’s an indication where indecision and uncertainty among buyers and sellers prevail..
Many day traders, scalpers and investors consider a spinning top as a form of Doji. In Doji, the open and close are almost the same, so the body of the candle will have no color.
How to trade spinning top candlestick pattern
As discussed, Spinning tops are sign of indecision in the markeṭ.
Traders before trading spinning top candles try to understand how it’s formed and where it sits in relation to the overall market trend.
In downtrend the bears are in absolute control. If you find a spinning top candle in a downtrend, it indicates indecision in a continuous downtrend. Therefore you have the following two possibilities;
- Either the downtrend will continue after a pause, or
- The market could reverse its direction to the upside.
As there is no clarity, traders generally get prepared for both situations. They either wait for more confirmation to take a trade or go with half size of their position with a stop loss.
Likewise, if a spinning top candle appears at the top of an uptrend, it indicates a possible reversal or continuation of the existing uptrend based on the overall matket context.
If the spinning top occurs within a trading range, this indicates indecision is still prevalent and the range will likely continue.
Traders generally don’t enter a trade immediately after the spinning top has formed. They rather wait for confirmation to enter. Confirmation can be taken from technical indicators, fundamental factors and formation of the next few candles. Traders may consider the range of the spinning top candle as support and resistance. When the next candle closes lower the wick of the spinning top in an uptrend, traders may consider it a bearish signal to go short or sell.
Reversal candlestick patterns work well in conjunction with other forms of technical analysis. For instance many traders look at technical indicators, like RSI (Relative Strength Index), MACD (moving average convergence-divergence), support and resistance in conjunction with candlestick reversal patterns to read the sign of reversal.
Here is a list of candlestick patterns for your reference;
- Evening Star
- Morning Star
- Bearish Abandoned baby candlestick pattern
- Bullish Abandoned baby candlestick pattern
- Three Inside up/down
- Three outside up/down
- Inside Bar
- Bullish Piercing
- Dark Cloud Cover
- Spinning Top
- Shooting Star and Inverted Hammer
- Hammer & Hanging Man
- Gravestone, Dragonfly and long-legged Doji
- Engulfing Candlestick Pattern
Be sure you practice identifying and trading these candlestick patterns on a demo account before trading them with real money.
In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Most investors and traders lose money. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals.
