You may have heard of the spinning top candlestick pattern if you’re a trader. This pattern can indicate indecision in the market and can be a signal for a potential trend reversal.
However, it can be challenging to identify. In this guide, I’ll show you how to spot the spinning top pattern and how to use it in your trading strategy.
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 the price visited but was not sustained. In the case of a spinning top, upper and lower wicks show 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 are the different types of spinning tops?
Spinning Top candlesticks can be broadly classified into two main types based on the color of their small real bodies:
- Bullish Spinning Top: This type of spinning top has a green (or white, depending on the color scheme of the chart) body, which means the close was slightly higher than the open. Despite the indecision in the market, buyers were able to push the price up slightly by the close. However, the small size of the body relative to the shadows emphasizes the overall uncertainty in the market.
- Bearish Spinning Top: A bearish spinning top has a red (or black) body, indicating the close was slightly lower than the open. While this shows sellers managed to bring the price down a bit by the close, the small body in contrast to the long shadows, signals a lack of clear control by either buyers or sellers.
Remember, regardless of its type, a spinning top primarily indicates indecision or a potential turning point in the market.
The color of the real body alone does not determine whether the pattern is ultimately bullish or bearish.
The context of the surrounding candlesticks and overall trend should be considered when interpreting these patterns.
What Does The Spinning Top Indicate?
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 the price above the open while the bear sends the price below its open.
There was no clear winner during this session 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 an uptrend’s or downtrend’s end. 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 opening 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 is 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.
Trading Strategies for The Spinning Top Pattern
Once you have identified the spinning top pattern, you can use a few trading strategies.
One approach is to wait for pattern confirmation with other technical indicators, such as moving averages or trend lines.
You can also look for support and resistance levels to determine potential entry and exit points.
Another strategy is to use the spinning top pattern as a signal to take profits or cut losses on existing positions.
Always consider the overall market trend and any fundamental factors that could impact the price movement before making any trading decisions.
The Spinning Top is not inherently bullish or bearish. It’s a sign of indecision in the market. Its interpretation largely depends on the context of the preceding trend. A Spinning Top that appears during an uptrend could indicate buyers are losing control, and a reversal may be forthcoming. At the same time, a Spinning Top in a downtrend may signal that sellers are losing steam, and a bullish reversal could be imminent.
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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 too often, so many 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. However, the use of a trailing stop eliminates this issue.
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