Spinning Top Candlestick Pattern

Whatever spinning top strategy you employ, a key rule to follow is to always wait at least one session before opening your position. Remember, a spinning top only ever tells you that bulls and bears are cancelling each other out – which side is going to win out remains to be seen. On the other hand, if you spot a spinning top on a rangebound market it can signal a continuation of the consolidation. Here is a chart showing an uptrend, and after spinning tops, the stock rallied. Here is another chart which shows the continuation of a downtrend after the occurrence of spinning tops.

How to trade when you see the spinning top candlestick pattern

The spinning top candlestick is an easy formation to recognise and can be helpful in determining whether a price reversal might occur. Learn more about this pattern and how you can trade when you recognise it. A Spinning Top signifies market indecision, which can precede a potential price reversal or a continuation, depending on the overall trend and subsequent candles. 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.

In the long run, the prices are always trending near the moving averages. Bear factors are futile to make the market move in a single direction, resulting in market indecision. The components of a bearish spinning top will help in indicating that the price will fall likely and the sellers are back in control. A Bearish Spinning top indicates that bulls are losing control at the peak of an uptrend, and the bears are taking control. This also indicates that the trend may be about to change to a downtrend.

1. This balance frequently precedes major market movements, making spinning tops crucial signals for traders.
2. The small body and long shadows of a spinning top reveal a balance between buyers and sellers, signaling that the prevailing trend may be losing momentum.
3. If the spinning top occurs at the bottom of a downtrend, it could signal that a bullish reversal may happen.
4. The market had been bullish due to positive economic data from the Eurozone, pushing the EUR/USD higher.
5. One advantage of the bullish spinning top candlestick pattern is that it can provide traders with an early indication of a potential trend reversal in a downtrend.
6. You already know that a market will cycle between periods of low volatility and high volatility.
7. RSI oscillates between 0 and 100 and is calculated by comparing an asset’s average gains and losses over a specified time period.

Spinning Top Candle: What is it, and What Does it Tell You?

The bulls have also attempted to arrest the price fall and have tried to hold on to their position, though not successfully. After all, if they were successful, the day would have resulted in a good blue candle and not really a spinning top. Now think about the spinning top as a whole along with all its components, i.e. real body, upper shadow, and lower shadow. The bears tried to take the markets lower, and it did not work either.

A bear market or bearish is a situation when the stock market experiences price declines over a period of time. The usual causes of a bear market are unexpected fluctuations, world recession, etc. While spinning tops can provide insight into market conditions, their true value is unlocked when combined with other technical indicators. Traders commonly use spinning tops alongside the Relative Strength Index (RSI), Moving Averages (MA), and Bollinger Bands to strengthen their analysis. Presenting historical chart data with Spinning Top patterns can elucidate both successful and less effective trading scenarios. These real-world examples help traders recognize when a Spinning Top might lead to a profitable trade and when it might not.

What is a Bearish Spinning Top?

This means that the bulls are losing control, and bears may take the reins. Both spinning tops and doji patterns represent market indecision, but there is a notable difference in their structure. While both have small real bodies, a doji typically has little to no real spinning top candle body, indicating that the open and close prices are identical. Spinning tops, on the other hand, have small real bodies but long upper and lower shadows.

1. Here is another chart where the doji appears after a healthy uptrend after which the market reverses its direction and corrects.
2. In the case of EUR/USD in August 2020, several factors contributed to the market indecision.
3. What matters is the fact that the open and close prices were very close to each other.
4. It went into a consolidation forming several Spinning Top candlesticks within the flag.
5. A bearish crossover, which is also known as the death cross, is signalized when the defined short-term moving average crosses the long-term moving average from above.
6. Another error is calculating that a bearish spinning top will mean that there are chances of a bearish reversal in a market.

As we can see, the spinning top candlestick appears at the key Fib level of 50% – giving further strength to the bearish signal. Because of this, most traders hold off confirming what the market might do next. For example, if a spinning top appears in a strong uptrend, they might wait to confirm that a reversal is underway before they open a position. A bullish trend occurs when stock prices are rising and investors are confident about the stock’s future. It is the inverse of a negative trend, in which stock values are declining and investors are pessimistic about the stock’s future.

What Is a Spinning Top Candlestick?

Cyclical movements in the business cycle are known to cause a recession in an economy, and this is characterized by a downtrend in the overall price level. This includes a fall in the average stock prices resulting from reduced demand, which, in turn, lowers the value of benchmark indices in a country. A spinning top with long shadows can create a large high-to-low range, making it difficult to set stop-loss orders without taking on considerable risk.

A bullish candlestick is formed, and it looks like the continuation of the ongoing uptrend. The second day’s bearish candle’s high indicates a resistance level on the next day. Bulls seem to raise the price upward, but now they are not willing to buy at higher prices. The top-most candles with almost the same height indicate the strength of the resistance and also signal that the uptrend may get reversed to form a downtrend.

Using stop loss and take profit can protect you, but that is easier said then done when using spinning top candlesticks. When encountering the spinning top pattern, traders have several options to consider. The spinning top candlestick chart pattern develops when buyers and sellers reach an equilibrium, leading to minimal changes between opening and closing prices. This subtle shift is usually called a continuation pattern in trading terminology. The bullish spinning top is represented as green, and the bearish spinning top is represented as red.