Trend reversals can easily be taken advantage of with both long-term and short-term approaches, and even with both single-leg and multi-leg strategies. These easily-spottable configurations of shapes can go a long way in pointing us in the right direction. However, a trader needs to apply technical indicators and signals to analyze the trading movements. Such an analysis will protect the trader from straying away from the trading pattern and stick within the risk management plan.
Spinning Top Candlestick
Then, watch out when the RSI starts to point up, as it can serve as a leading indicator of a possible change in market sentiment. As shown, we can observe a downtrend before the spinning top candle occurred. The pattern was then followed by a bullish candle that served as a reversal—indicating that market sentiment had shifted from bearish to bullish. In contrast, bearish spinning tops are also followed by a “confirmation” candle, which is a bearish candle closing either within the spinning top’s lower wick or below its low. These two candles then serve as a bearish price reversal pattern. A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a security, derivative, or currency.
Tops are fundamental to forming these flag and pennant formations. It may resemble long-legged doji candlesticks when reading stock charts. That is why avoiding getting bogged down in the minutiae is important. The first example is on the 4HR chart of NZD/JPY and is a trend continuation setup.
Market news and economic events can significantly influence the formation of spinning tops. Unexpected news releases or economic data can create volatility and uncertainty, leading to the price fluctuations that characterize spinning tops. In such cases, the pattern may reflect spinning top candlestick the market’s reaction to the news, indicating a temporary pause or a reassessment of the prevailing trend. Traders should be aware of scheduled news events and consider their potential impact when interpreting spinning tops.
- This pattern forms when the closing price is slightly below the opening price, resulting in a small real body situated between long upper and lower shadows.
- The first circled pattern is a green or bullish spinning top.
- Much of the credit for candlestick charting goes to Munehisa Homma (1724–1803), a rice merchant from Sakata, Japan who traded in the Dojima Rice market in Osaka during the Tokugawa Shogunate.
- It’s not a signal to buy now, but rather to watch what happens.
- A spinning top doesn’t always lead to a reversal – but even those cases are significant when practicing proper risk management.
Strategy #2: The false break strategy
They emerge when bullish and bearish forces, speculating on price rise and decline, respectively, are evenly matched, resulting in a minimal net price change. Consequently, the opening and closing prices remain very close, forming a short real body within the candlestick. Doji and spinning top candlesticks can be confused as they have similar characteristics. However, the latter has a small body and upper and lower shadows of approximately equal lengths. It indicates market indecision, suggesting a balance between buyers and sellers without a clear dominant force.
The TickTrader trading platform allows traders to learn how to spot patterns on charts of different assets to trade them right away. In such cases, traders typically wait for confirmation of the next price move. A break above the high of the spinning top may signal the trend will continue upward, while a break below the low could suggest the trend may move down. Observing how subsequent candles interact with the spinning top can help a trader gauge the market’s intentions. When a spinning top forms in the middle of an ongoing trend, traders often view it as a signal of potential market hesitation.
Since a spinning top is a neutral candlestick pattern, it can lead to either a bullish or bearish trend. Hence, it is best interpreted with the following candle to confirm the asset’s likely direction — either confirming a potential reversal or simply a continuation of the prevailing trend. A bullish spinning top candlestick is followed by a “confirmation” candle, which is a bullish candle closing either within the spinning top’s upper wick or above its high. These two candles then serve as a bullish price reversal pattern. In volatile markets like crypto, this behavior becomes even more visible.
Meaning of Spinning Top Candle for Traders
Both types signal market indecision or a temporary balance between buyers and sellers. A spinning top is a candlestick pattern frequently used in technical analysis. It consists of one candle with a small body and long upper and lower shadows of approximately equal length.
What Does a Spinning Top Candlestick Tell You?
- Even more importantly, you need to develop your own edge and learn risk management.
- If you can learn to identify the underlying market context in which the Spinning Top candlestick is appearing, it can work wonders for you!
- To become a successful trader, understanding candlesticks is a great place to start.
- It’s like the market tried to go somewhere but ran out of conviction.
- When this pattern appears after a prolonged move upward or downward, it suggests that the driving force behind the trend could be fading.
You can treat a Spinning Top like the piece of a larger puzzle to help you find the right timing for entries and exits with more confidence. If you ignore the context and confirmation, however, it will just be another random candle on the chart. A good start can be to practice spotting them and to see what happens after they appear. Always study them by taking the rest of the chart and context into consideration. While they are a lot more subtle than other candlestick patterns, Spinning Tops can be valuable clues for timing trades when they’re backed up with other data.
To become a successful trader, understanding candlesticks is a great place to start. But you should also learn how candlestick patterns and chart patterns work. Plus, you need to be able to recognize cycles, trends, and price levels. Yes, spinning tops can be incorporated into algorithmic trading strategies. However, it’s essential to backtest and optimize the algorithms to ensure their effectiveness across different market conditions. Implementing these takeaways can transform your trading approach, leveraging the spinning top candlestick pattern to achieve greater market success.
What Is a Spinning Top Candlestick Pattern?
Neither side is in control, and the pattern often reflects low momentum. This structure shows that buyers pushed prices up and sellers pushed them down, yet neither side managed to dominate. For traders who understand that every candle tells a story, the spinning top is a reminder that sometimes the market simply takes a breath before deciding which way to run. One advantage is that it works across different time frames, making it suitable for both short-term and long-term strategies.
Why Traders Pay Attention to This Pattern
A spinning top can signal a price reversal, though confirmation is crucial. For instance, if a bearish spinning top candlestick forms at the top of an uptrend, it suggests that bears are gaining control and the bullish momentum is waning. Conversely, a bullish spinning top candlestick at the bottom of a downtrend implies that bears may lose their grip, and bulls could take charge. In the world of candlestick charts, some patterns speak loudly, while others whisper their message. The spinning top candlestick pattern is one such subtle signal. It may not scream “buy” or “sell,” but it quietly tells us that the market is uncertain about its next move.