The Spinning Top Candlestick Pattern is a single candle which can indicate indecision in the market. The Spinning Top pattern consists of a small body with long upper and lower wicks. It shows that neither buyers or sellers are in control and that the market is deciding on its next move. A spinning top occurring at the peak of an uptrend can signify that the bullish is losing track and the trend is about to reverse. However, when a spinning top is at the base of a downtrend, it is a sign that the bearish is losing control, and the bullish may take control.
What is the Spinning Top Candlestick Pattern?
The Spinning Top Candlestick Pattern can be bullish or bearish. It can emerge in an uptrend or downtrend or when the market is moving sideways.
In the uptrend, the Spinning Top shows that the buyers are not eager to buy more, and a reversal is possible. Conversely, in a downtrend, the appearance of Spinning Top tells that sellers are losing interest, and there is a possibility of an upward movement of the price.
Since buyers and sellers are not willing to open the trade, the Spinning Top shows uncertainty.
Its longer upper and lower shadow represents that the bulls set the price higher, and the bears set the price lower, but neither of them is in control, and the price closes near its open position.
In both upward and downward appearances, it is the candle next to the Spinning Top you need to observe. For example, if you think that price will reverse in an uptrend, the candle next to the Spinning Top must confirm a price drop. If it doesn’t, then there may be no reversal.
The Spinning Top can occur regularly on forex charts when the price moves sideways or when it is about to move sideways.
Here’s what the Spinning Top looks on a chart.
The Spinning Top and the Doji Candlestick Pattern tells about the uncertainty in the market. While the Spinning Tops have longer upper and lower wicks, the Dojis have shorter upper and lower wicks.
How to use the Spinning Top Candlestick Pattern?
To use the Spinning Top, you need to understand its formation and overall market condition.
Many traders would wait for the confirmation and not enter the trade immediately after the emergence of the Spinning Top pattern.
The confirmation can come from oscillators like the Stochastics, RSI or MACD.
As you can see in the chart above, even though there is a Bullish Spinning Top, the RSI is showing a value of 42.21. Anything below the 30 is often considered oversold and above 70 is usually considered overbought.
Even though the candle next to the Spinning Top is bearish, there is indecision between buyers and sellers. In this scenario, we may wait for the price actions and then go long or short.
Spinning Top Candlestick Pattern trading strategy
As the Spinning Top Candlestick Pattern describes hesitance, we need to locate the pattern on longer timeframes for our trading strategies to help fitler out some of the market noise.
After finding the pattern on longer timeframes, we can select shorter timeframes for entry points.
There are two variations of this chart pattern: the bullish spinning top (green in colour) and the bearish spinning top (red in colour). The bullish formation occurs when the closing price is higher than the opening price, while the bearish pattern occurs when the opening price is higher than the closing price.
What is unique about these candlestick formations is the fact that the real body is very small, but the upper and lower wicks on both sides of the candlestick body are long.
Spinning Top buy strategy
- The Spinning Top must appear in a downtrend.
- Wait for the price bar to go bullish.
- Place a stop-loss near recent low from the Spinning Top.
- Exit the trade at the highs.
Spinning Top sell strategy
- Look for the Spinning Top in an uptrend.
- Wait for the price bar to go bearish.
- Place a stop-loss near recent high from the Spinning Top.
- Exit the trade at the lows.
Spinning Top Candlestick Pattern Conclusion
The Spinning Top Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. The Spinning Top defines neutrality between buyers and sellers. As mentioned earlier, the Spinning Top can appear in an uptrend or downtrend, so it provides both buying and selling forex trading signals.
Unfortunately, spinning top candles are not the be-all and end-all. As with all candlestick patterns, there are some limitations to the spinning top candle. While the spinning top candlestick appears frequently, it also comes with drawbacks because it routinely appears during sideways movement, which leads the price nowhere.
One way to get around this issue is to use multiple time frame analysis. For example, if a spinning top candle prints on a daily chart, a forex trader can zoom into the 1-hour chart — and use other trading tools as well — to better time the market. This can skew the risk-to-reward ratio in their favor.
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