Spinning Top Candlestick Pattern Overview, Formation, How To Trade

spinning top candlestick pattern

As such, you need to test the strategies and patterns you want to use, before trading real money. One of our favorite indicators to define overbought and oversold conditions is the RSI indicator. The traditional interpretation is that readings above 70 signal an overbought market, and readings below 30 an oversold market. While the spinning top on its own is believed to signal a reversal of the trend, it’s not enough to act on alone. You need additional filters and conditions to ensure that the odds are in your favor. However, according to some, the pattern shouldn’t be interpreted as a reversal pattern, but more like a general sign of indecision in the market.

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Spinning tops don’t have many practical uses compared to the typical candlestick patterns we use – like pins, engulfs, inside bars, etc. Seeing one tells you the bulls and bears are really fighting it out – hence why the wicks are so big. So after one forms, watch for your typical signs of a reversal – pin bars, support and resistance, etc – as price could be gearing up for a large reversal. If taking trades based on candlesticks, this highlights the importance of having a plan and managing risk after the candlestick.

Strategy Example 1: Going Long on a Spinning Top With Confirmation

As mentioned, the Spinning Top candlestick tells you that there is a pause or indecision in the market. Join thousands of traders who choose a mobile-first broker for trading the markets. Harness the market intelligence you need to build your trading strategies. Deepen your knowledge of technical analysis indicators and hone your skills as a trader.

spinning top candlestick pattern

Simple patterns

spinning top candlestick pattern

If you don’t feel ready to trade on live markets, you can develop your skills in a risk-free environment by opening an IG demo account. If a candlestick pattern doesn’t indicate a change in market direction, it is what is known as a continuation pattern. These can help traders to identify a period of rest in the market, when there is market indecision or neutral price movement. Let’s assume you’re following Aston Martin’s share price, which opens the trading day at 442p. As sellers enter the market, the share price starts moving, hitting a low of 430p. Buyers start to push back, and the share price reaches a high of 455p before the market settles and the share price closes at 445p.

After price falls and a bearish engulf forms (also a good reversal signal – and probably the better entry option), price begins to move sideways, and another spinning top appears. Here, in a prevailing downtrend, the price formed several Spinning Top candlesticks but failed to reverse. It indicates that there was a significant sell-off during the day, but that buyers were able to push the price up again. The large sell-off is often seen as an indication that the bulls are losing control of the market.

Traditionally, candlesticks are best used on a daily basis, the idea being that each candle captures a full day’s worth of news, data, and price action. This suggests that candles are more useful to longer-term or swing traders. Overbought and oversold conditions can be identified using indicators like RSI or by considering the highest/lowest close over a certain number of bars. The effectiveness of spinning top patterns may vary based on the timeframe and market conditions. 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. Since candlestick patterns are representations of market action, they give us interesting insights into what the market has been up to.

Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. Note the long lower tail, which indicates that sellers made another attempt lower, but were rebuffed and the price erased most or all of the losses on the day. The important interpretation is that this is the first time buyers have surfaced in strength in the current down move, which is suggestive of a change in directional sentiment.

When the breakout fails, the stops of all those who went long will be hit, and it will further add to the selling pressure. When a breakdown fails, all those who shorted at the breakdown will see their stops getting hit and start covering their shorts, which further adds to the upward momentum. The entry could have been taken just before the close, or at the next day’s opening. And since the price is trending, a continuation in the direction of the trend becomes more likely. Also, it is safe to assume that most traders are tracking more than one stock/pair.

It means that a spinning top may alert about an upcoming crucial change in a trend. However, a confirmation from the next candle is key to determine whether the prices will drop after the uptrend. A spinning top is a candlestick pattern with a short real body that’s vertically centered between long upper and lower shadows. The candlestick pattern represents indecision about the future direction of the asset. There is usually a significant gap down between the first candlestick’s closing price, and the green candlestick’s opening.

The key is that the second candle’s body “engulfs” the prior day’s body in the opposite direction. This suggests that, in the case of an uptrend, the buyers had a brief attempt higher but finished the day well below the close of the prior candle. This suggests that the uptrend is stalling and has begun to reverse lower. Also, note the prior two days’ candles, which showed a double top, or a tweezers top, itself a reversal pattern. When looking at a candle, it’s best viewed as a contest between buyers and sellers. A light candle (green or white are typical default displays) means the buyers have won the day, while a dark candle (red or black) means the sellers have dominated.

  1. Bullish patterns may form after a market downtrend, and signal a reversal of price movement.
  2. As such, you need to test the strategies and patterns you want to use, before trading real money.
  3. If another spinning top forms, the bulls, and bears are still battling it out; stay on sidelines and wait for more PA.
  4. After a sharp rise, Eur/Usd moves into a supply zone and begins to show bearish price action.
  5. Whoever wins will control price, but that will only show on the next candle, not the spinning top.

2 hours later, 3 consecutive big bearish pin bars form, telling you the bears have probably won the battle and that price could be about to fall, which it then does. These spinning tops can signal a reversal may soon begin, but DO NOT take them as entry signals. Most of the time, they form at market turning points, usually near a recent high or low. Most traders use indicators to confirm the signal of a spinning top and gather more facts on the price trends. Trading with the spinning top pattern can be done using derivatives like trading contracts for difference (CFDs).

We will look to buy a failed breakdown at an important swing low or support zone, within the context of an overall uptrend. Entry was triggered when the price broke out of the flag and more importantly, closed above it. An exit signal would be generated when you get a close below (for bull flags) or above (for bear flags) the 20 SMA.

Watching a candlestick pattern form can be time consuming and irritating. If you recognize a pattern and receive confirmation, then you have a basis for taking a trade. Let the market do its thing, and you will eventually get a high-probability candlestick signal. A hanging man pattern suggests an important potential spinning top candlestick pattern reversal lower and is the corollary to the bullish hammer formation. The story behind the candle is that, for the first time in many days, selling interest has entered the market, leading to the long tail to the downside. The buyers fought back, and the end result is a small, dark body at the top of the candle.

The only difference being that the upper wick is long, while the lower wick is short. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Please consider the Margin Trading Product Disclosure Statement (PDS), Risk Disclosure Notice and Target Market Determination before entering into any CFD transaction with us.

This will help you in predicting exactly when price is going to reverse from a level or zone. Now, on its own, this isn’t a great signal because we don’t know whether the zone will hold or not. After a sharp rise, Eur/Usd moves into a supply zone and begins to show bearish price action. We don’t actually get an entry in this case – after the top, price reverses on its own and jumps higher. A spinning top appears 4 -5 hours after price enters the zone – some would call this a doji, but it’s really a spinning top. It’s simple enough – just watch for a spinning top once price hits a level or enters a demand zone.

You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. As a spinning top only tells us that the market is hesitant about where to head next, there is a quite big chance that it will continue in the dominant trend direction shortly thereafter. That’s why we might want to have some sort of confirmation in the form of price action, before we enter the market. As the market is trending down, the market sentiment is bearish, and most people anticipate that it will continue to go down for some more time. However, since the market has gone down for an extended period of time, buying pressure starts to increase, in the hope that a market reversal is imminent. A spinning top is traditionally seen as a form of reversal pattern that occurs after a bullish or bearish trend.

(Such a candlestick could also have a very small body, effectively forming a spinning top.) Small bodies represent indecision in the marketplace over the current direction of the market. It can occur after a bullish or bearish trend, signaling a potential reversal or a general sign of market indecision. Volume adds a second dimension to trading by showing the activity behind a price move. The formation of a spinning top candlestick helps determine the probability of a price reversal especially if it happens after a price decline. Because of the small variation in the market trend, the candlestick is referred to as a continuation pattern.

There are a few ways to trade when you see the spinning top candlestick pattern. Most traders use technical indicators to confirm what they believe a spinning top is signalling, because these indicators can provide more insight into price trends. A daily candlestick represents a market’s opening, high, low, and closing (OHLC) prices. The rectangular real body, or just body, is colored with a dark color (red or black) for a drop in price and a light color (green or white) for a price increase. The lines above and below the body are referred to as wicks or tails, and they represent the day’s maximum high and low. This resulted in the closing price reverting back/very close to the opening price.

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