The spinning top is a Japanese candlestick pattern that comprises a small body and two long wicks.
Japanese candlesticks are an effective way to represent market data. In the 18th century, candlestick charts were introduced by a rice trader. Eventually, it was introduced to the West by Steve Nison in a book that can be found on this list.
Furthermore, candlestick patterns can be singular, dual, or trio. The spinning top candlestick is a single candlestick pattern.
What Is The Spinning Top Candlestick Pattern?
A spinning top pattern has a small body and two long wicks. It can appear as a bullish or bearish candlestick.
This pattern functions similarly to a Doji, its shadows signify indecision in this market session.
The wicks of the candlestick in the image above illustrate where price visited but was not sustained. In the case of a spinning top, there are upper and lower wicks showing both buyers and sellers could not sustain their strength.
Therefore, this action translates to a stalemate in the market session since neither bulls nor bears dominated.
Due to this reason, the spinning top has to be among other candlestick patterns to gain importance.
What Does The Spinning Top Tell You?
Just like the Doji, the spinning top shows an inconclusive result in a certain market session. It should be known that each candlestick presents a market session.
Before a spinning top candlestick forms, the bulls send price above the open while the bear sends price below its open.
During this session, there was no clear winner between the bulls and bears.
Therefore, the price ended up closing close to the open, leading to a small body forming.
When the spinning top appears at the end of an uptrend it shows that bulls might be slowly losing steam.
Contrarily, when the spinning top pattern forms at the end of a downtrend, the strength of bears reversal might be imminent.
How To Trade The Spinning Top Pattern
The spinning top pattern is considered when it appears at the end of an uptrend or downtrend. Even when this occurs, confirmation is heavily required.
Additionally, the spinning top pattern alone indicates indecision but there’s no guarantee a reversal might occur.
Hence, the candle that comes after the spinning top candlestick is really important. For instance, if the spinning top pattern forms at the end of an uptrend, the next candle’s close must be below the open of the spinning top candlestick.
Likewise, if the spinning top is found at the end of a downtrend, the preceding candle should close above it before a trade will be placed.
Note: in both cases, the stop loss is placed above/ beneath the wick of the spinning top candlestick.
Example of The Spinning Top
In the example above, the spinning top candlestick was formed after a markdown. This denotes that a bullish reversal might be on the way.
Next, the candle that followed engulfed the spinning top verifying the reversal.
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Summary; The Spinning Top Candlestick Pattern
The spinning top candlestick is an important candlestick that shows the buyer-seller balance on the charts.
A major drawdown to the spinning top candlestick is that they are common. They appear way too often so a lot of false signals will be seen. Even if a confirmation candle is waited for as stated above, a reversal might not occur.
Also, since this candlestick’s wick are long, stop losses can be rather large which means an increase in risk.
Lastly, levels for taking profits cannot be easily determined when trading this pattern. Although the use of a trailing stop eliminates this issue.