What is a Spinning Top Candle and What Does it Indicate?

It gives you flexibility in case the market follows through for a short time and then reverses again. This is an aggressive entry where you enter while the confirmation candle is forming. So, a trader would enter on the break of the spinning top’s high or low, depending on the anticipated direction.

However, it’s essential to note that the spinning top, on its own, is not a definitive bullish signal. Traders should look for corroborative signs, such as a subsequent bullish candle or supportive readings from other technical indicators, before considering a long position. Additionally, factors like trading volume during the formation of the spinning top, or its proximity to key support levels, can further influence its bullish implications. The formation of a spinning top candlestick is significant as it often marks a turning point in the market. It indicates that the prevailing trend may be losing momentum, and a reversal or consolidation could be imminent. Traders pay close attention to this pattern as it provides insights into potential market direction changes, allowing them to make more informed trading decisions.

Spinning Top Candlestick Pattern: How to Trade It?

Let’s take a step-by-step approach and go over what these patterns represent, how to analyze them, what causes them, and finally, how to use them.

Even if no reversal occurs, the pattern is still highly usable – either as a signal to close positions or change your strategy and approach. In either case, when a spinning top or a doji appears during a trend, it is a sign of possible reversal. When it occurs during sideways trading, spinning top candle it is usually of little significance. Sure enough, in short order we see a reversal and a sizable increase in price – as well as the makings of a new, longer-term uptrend. These easily-spottable configurations of shapes can go a long way in pointing us in the right direction.

How to Trade the Dark Cloud Cover Chart Pattern

Meanwhile, the long upper and lower shadows reflect significant volatility within the trading session. This duality showcases a tug-of-war scenario where prices fluctuate widely but end up closing close to the opening price, highlighting the struggle between buying and selling pressures. The dragonfly doji’s distinct difference in appearance is its little to no real body coupled with relatively long lower shadows or wicks. Similar to the hammer and bullish pin bars, dragonfly dojis are also bullish reversal patterns that appear in downtrends. While the name spinning top might suggest a market peak, this candlestick pattern does not indicate a top. The defining features of a spinning top are its long shadows above and below, with the opening and closing prices near the middle.

• The asset is neither bullish nor bearish, and the price is at or near equilibrium.
• Volume adds a second dimension to trading by showing the activity behind a price move.
• The appearance of a spinning top – bearish or not, indicates that uncertainty has entered the market.

• Spinning top candlesticks are a type of candlestick that signals high levels of uncertainty.
• Its small body with long shadows reflects a balance of power between buyers and sellers, showing that neither side has a clear edge.
• A spinning top is characterized by a small body and long upper and lower shadows.
• Traders can set alerts for the periods towards the end of the spinning top or confirmation candle appearing (depending on the time frame) to avoid staring at the charts.

Conversely, when this pattern is spotted after a robust uptrend, it can be an indicator of a potential bearish reversal. The spinning top, in this scenario, hints that the bulls might be running out of steam, and a bearish sentiment could be taking root. When this pattern emerges at the tail end of a downtrend, it can be a sign of a potential bullish resurgence. The appearance of the spinning top in this context suggests that the bears are losing their grip on the market, and a bullish sentiment might be on the horizon. As the trading day nears its end, many expect a significant price movement given the day’s volatility.

The spinning top candlestick pattern is widely recognised as a symbol of market indecision, meaning that both bullish and bearish forces are somewhat balanced. While this indecision doesn’t guarantee a reversal, it often acts as a cautionary signal for traders who may be looking to enter or exit a position. There are a few methods for trading the spinning top candlestick pattern. Most traders use technical indicators to confirm what they believe the spinning top is signalling, since these indicators could offer more insights into price trends. A spinning top pattern is represented on a chart by a single candle with a short body, but long upper and lower wicks.

While a risky approach, it offers the tightest stop and greater reward potential. Once each of these factors is validated, it’s time to wait for the spinning top to form completely. Below is an example of Apple’s stock price from October 2022 to April 2023. Before you get there though, there’s still more to learn about the candles themselves. That’s one of the reasons it’s so important not to get too focused on any single candle.

A spinning top chart pattern can provide a possible entry point when utilizing a momentum trading approach. This is because highly volatile assets that reflect a high degree of interest from market participants tend to move fast and sharply over a short period of time. For instance, this can look like a major breakout from a prolonged sideways movement. When such a breakout occurs, it usually catapults the price, making substantially higher highs and higher lows in just a few trading sessions. Some traders may look for spinning tops on minutes or hourly charts, but there isn’t a lot of important information gleaned.

When it appears after a strong move, it can alert traders that momentum may be fading. Even though it does not provide exact price targets or guarantee a reversal, it helps traders identify moments when the market’s balance between buyers and sellers is delicate. Now, there might be that single trading strategies work better or worse on certain days, but you could also look at the general tendency of the market itself. The pattern can form during an uptrend or a downtrend, often indicating a potential reversal or a pause in momentum.