Table of Contents
- Understanding the Spinning Top Candlestick
- What Does a Spinning Top Candlestick Tell You?
- Example of a Spinning Top Candlestick
- Limitations of Using the Spinning Top
- Is a Spinning Top Candlestick Bullish or Bearish?
- What Is the Difference Between a Spinning Top and a Doji?
- What Is a Candlestick?
- The Bottom Line
Understanding the Spinning Top Candlestick
Let me explain what a spinning top is: it's a candlestick pattern with a short real body that's vertically centered between long upper and lower shadows. This setup means neither buyers nor sellers are gaining the upper hand in that trading period.
You can recognize spinning top candlesticks by their compact bodies and long upper and lower shadows, much like a child's toy top. They form when bulls and bears are in a tug-of-war, but neither side pulls ahead significantly during the session.
These patterns emerge when buyers push the price up and sellers push it down simultaneously, but the closing price ends up very close to the open. Spinning tops can signal a potential price reversal after a strong advance or decline, provided the next candle confirms it. The close can be above or below the open, but the prices are always near each other.
Key Takeaways
- Spinning tops can be powerful predictors of trend exhaustion when they appear after extended price moves.
- A spinning top is a candlestick pattern that has a short body that's vertically centered between long upper and lower shadows.
- The real body should be small, showing little difference between the open and close prices.
- Since buyers and sellers both pushed the price but couldn't maintain it, the pattern shows indecision and that more sideways movement could follow.
What Does a Spinning Top Candlestick Tell You?
Spinning tops are a sign of indecision in the asset; the long upper and lower shadows indicate there wasn't a meaningful change in price between the open and close. The bulls drove the price sharply higher, and the bears drove it lower, but ultimately, the price closed near where it opened. This indecision can signal more sideways movement, especially if the spinning top occurs within an established range. It can also point to a possible price reversal if it follows a price advance or decline.
Sometimes, spinning tops may signal a significant trend change. If you see a spinning top at the top of an uptrend, it could mean that bulls are losing control, and the trend may reverse. Similarly, a spinning top at the bottom of a downtrend could indicate that bears are losing control, and bulls may take over.
In any case, confirmation is key to understanding what the spinning top is saying. That confirmation comes from the next candle. If you think the spinning top after an uptrend could lead to a downside reversal, look for a bearish candle with a lower close following it. If that doesn't happen, the reversal isn't confirmed, and you should wait for another signal. If the spinning top is within a range, it suggests indecision persists, and the range will likely continue—confirmed if the next candle stays within the sideways trend.
Spinning tops are a common candlestick pattern, and they work best when combined with other forms of technical analysis. For instance, you might check technical indicators like the moving average convergence-divergence or relative strength index for reversal signs before trading on a spinning top. Other analysis tools, such as those identifying support and resistance, can help you make better decisions based on these patterns.
Example of a Spinning Top Candlestick
Consider this chart example with several spinning tops. On the left, the first one appears after a small price decline and is followed by a down candle, indicating a further slide. The price dips a bit lower but then reverses upward. If you're trading based on candlesticks, this shows why you need a plan and risk management after the pattern forms.
The second spinning top occurs within a range, and since the price continues sideways, it confirms the market's indecision.
The third spinning top is notably large compared to surrounding candles. It follows an advance and is succeeded by a large down candle, turning it into a reversal signal as the price proceeds lower.
As the price drops, another spinning top forms, but it proves to be a brief pause—the next candle gaps lower, and the fall continues.
These examples emphasize the importance of confirmation and context. Spinning tops in ranges typically confirm the range and indecision. In trends, they may signal reversals, but the following candle must confirm the breakout or breakdown.
Limitations of Using the Spinning Top
Spinning top candlesticks are common, which means many patterns will be inconsequential. Assets often have periods of indecision, so this makes sense. Spinning tops frequently occur when the price is already moving sideways or about to start.
When it comes to forecasting reversals, the commonality of spinning tops makes it problematic. Many won't result in a reversal. You need confirmation, but even then, there's no assurance the price will continue in the new direction.
Trading around a spinning top can pose issues because the candle can be quite large from high to low. If confirmation comes and you take a trade, placing a stop loss above or below the spinning top's high/low could mean a large risk that may not justify the potential reward.
Assessing the reward potential of a spinning top trade is also difficult since the pattern doesn't provide a price target or exit plan. You should use other candlestick patterns, strategies, or indicators to find a profitable exit.
Is a Spinning Top Candlestick Bullish or Bearish?
If the spinning top occurs at the bottom of a downtrend, it could signal that a bullish reversal may happen. Conversely, if it occurs at the top of an uptrend, it could suggest a bearish reversal.
What Is the Difference Between a Spinning Top and a Doji?
Spinning tops and dojis both represent indecision. Dojis are smaller, with small real bodies and small upper and lower shadows. The spinning top has long upper and lower shadows. Both patterns occur often and are sometimes used to warn of a reversal after a strong price move. Both rely heavily on confirmation. A strong move after the spinning top or doji tells more about the new potential price direction than the pattern itself.
What Is a Candlestick?
A candlestick is a type of price chart used in technical analysis. It displays the high, low, open, and closing prices of a security over a specific period. The wide part of the candlestick is called the 'real body' and tells you whether the closing price was higher or lower than the opening price.
The Bottom Line
The spinning top candlestick pattern represents indecision and uncertainty about an asset's future direction. It indicates that the bulls sent the price higher while the bears pushed it back down, resulting in no meaningful change in price. However, a spinning top can signify a future price reversal if confirmed by the following candle.
The spinning top is a common candlestick pattern, and trading with it is like trading other formations: you should combine it with other candlestick patterns and indicators to find profitable exits.
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