By now, I hope you realize how powerful the Spinning Top candlestick can be if it is used in the right context. The presence of a Spinning Top candlestick just before this failed breakout told you that there was indecision going into the breakout. The price attempts to breakdown below the swing low, but forms a Spinning Top candlestick instead. In this strategy, we will incorporate the Spinning Top candlestick, into the classical flag pattern. Do you see how some Spinning top candlesticks led to a price rise, while some led to falls and in some cases, the price just went sideways?
Bullish Pennant in Trading: How to Trade with Volume Analysis
A hammer shows that although there were selling pressures during the day, ultimately a strong buying pressure drove the price back up. The colour of the body can vary, but green hammers indicate a stronger bull market than red hammers. The filled or hollow portion of the candle is known as the body or real body, and can be long, normal, or short depending on its proportion to the lines above or below it. If the closing price is above the opening price, then normally a green or hollow candlestick (white with black outline) is shown. If the opening price is above the closing price then a filled (normally red or black) candlestick is drawn. Crypto volatility enhances the visibility of these patterns, particularly on 15-minute to 1-hour charts.
Candlestick Patterns: Interpreting the Spinning Top
A spinning top has a small body with visible discrepancies between opening and closing prices, whereas a doji’s body is almost non-existent. Traders typically observe if the price breaks above the candle (bullish spinning top) or below the candle (bearish spinning top) to determine the likelihood of a reversal. When a spinning top forms at a significant peak or trough, it often draws attention as a potential reversal signal. This appearance may reflect market uncertainty after a prolonged uptrend or downtrend.
Lack of Clear Direction on Its Own and the Need for a Confirmation
In trading, candles can form patterns that can be your best friends or worst enemies. Some are very obvious signals, while others are a lot more subtle. When used with other economic indicators and data, it can indicate the market is going to reverse. Spinning top candlesticks are a type of candlestick that signals high levels of uncertainty.
Number 6 indicates the spinning top candle in the 15-minute DAX futures chart above. The appearance of a spinning top indicates that the market is in a state of uncertainty, reflecting an approximate balance of power between buyers and sellers. In this instance, the candle suggests that the buying momentum, which had been strong in the days prior, was weakening. Buyers likely became cautious as the price approached a zone where sellers had the upper hand on April 14, visible from the narrow profile (2). High trading volumes for the day suggest that both buyers and sellers were active, but neither side was able to take control. The closing price is slightly above the opening price, approximately in the middle of the candle.
Key Takeaways
This balance often results in price closing near its opening level, providing a visual cue that the market is temporarily uncertain about its next move. It’s important to understand that the spinning top, on its own, is not a definitive buy or sell signal. Instead, it serves as an early warning flag — a sign that the current trend may be running out of steam and that a reversal or pause could be approaching.
In most cases, this will cause the most risk-averse traders to exit their positions. This, in turn, can (and sometimes does) lead to a subsequent drop in price, or in other words, a reversal – the beginning of a downtrend. That might sound extremely unappealing, but indecision can be a significant piece of information. Our imaginary asset is in an uptrend and has been for some time now.
Which Indicators Can Be Combined With The Spinning Top to increase its success?
Use proper risk management techniques when trading spinning top candlesticks. A spinning top candlestick pattern is a small-bodied candle with long upper and lower wicks, signalling market indecision. It typically appears after significant price movements and reflects a temporary equilibrium. The spinning top pattern does not guarantee a trend reversal. It is merely a sign of uncertainty about the trend’s direction.
- The bullish trend increases the price further, while the bearish trend lowers the price until the overall price closes where it opened.
- When a spinning top forms after a series of bullish candles, it can signal that buyers are losing strength.
- These real-world instances highlight the versatility and reliability of the spinning top candlestick pattern when used appropriately.
- Next comes the Bullish Engulfing pattern — a small red candle followed by a large green candle that completely covers the previous one.
- You can never be 100% sure how a candlestick will look at the end of the time period.
Once they did, no buyers were left to stop price falling, resulting in a sharp decline before a new battle commenced at a lower price. If they lose the battle, price will move sharply because there’s no-one left to stop it anymore. That liquidity (people buying or selling to battle the other side) has been removed from the market, so price must continue in its current direction until more buyers or sellers are found. So we didn’t know (for sure) if buyers were still interested or whether the zone would cause a reversal. The top reconfirms that, telling us YES, buyers are still around, keep your eyes open because an entry signal could soon appear.
The long upper and lower shadows suggest that bulls tried to push the price higher, but bears managed to push it back down before the end of the day. Traders watch for spinning tops because they often appear at moments of balance or spinning top candlestick hesitation, points where a trend may pause, weaken, or prepare for a shift. Understanding this pattern helps traders read market sentiment more accurately and make better decisions in changing conditions. The spinning top is valuable because it highlights market hesitation. 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. It is important to note that on their own, spinning tops are neutral.
On this chart, you’ll see the spinning tops form the bull flag inside several rising wedges. They both tell the same story of consolidation or pullback areas. This is an example of spinning tops forming consolidation on a weekly chart of $META. Spinning tops can happen in uptrends, downtrends, and consolidation areas that form bull and bear flags.
A trader went long on the closing of the bullish candle that followed the spinning top. A take-profit target was placed at the closest resistance level, and a stop-loss was placed below the low of the spinning top candlestick. Remember, trading decisions should not solely rely on this formation. It’s crucial to consider additional technical indicators, market trends, and risk management principles when executing trades.
Depending on its position within a trend, it can signal consolidation, continuation, or a reversal in price direction. Traders often incorporate the spinning top candle pattern into their analysis as a way to interpret moments of market indecision. Whether the pattern appears during a trend or at key turning points, its context plays a significant role in shaping trading decisions.
According to Steve Nison, however, candlestick charting came later, probably beginning after 1850. Bullish reversal patterns appear at the end of downtrends, signaling potential exhaustion of selling pressure and a return of buyers. The hammer candlestick lacks an upper shadow and has a small body at the top of the candle, resembling a hammer’s head.
- The spinning top candlestick reflects market indecision and suggests a potential reversal or consolidation.
- However, we still got confirmation the zone was valid for trading and a heads up that a potential reversal could soon begin… which in itself was a worthwhile signal we can use to our advantage.
- After a strong uptrend, it starts with a big bullish candle, then an indecision candle, and finally a large bearish candle that closes well into the first.
- Unexpected news releases or economic data can create volatility and uncertainty, leading to the price fluctuations that characterize spinning tops.
- The repeated appearance of this pattern can carry even more weight than a single spinning top because it signals that the struggle between bulls and bears is persisting over time.
- If it is a red candle, then the low and closing prices are connected, and if it is a green candle, then the low and opening prices are connected.
What the Spinning Top candlestick has to do with this, right? Now, there is another interesting way in which we can use the Spinning Top candlesticks. It went into a consolidation forming several Spinning Top candlesticks within the flag. In this chart, the price had a move down forming the pole of the flag. This was followed by a pause where the formation of Spinning Top candlesticks indicated low volatility.
Let’s take a moment to explain these subtle differences and whether or not they offer any additional insight into future price action. A spinning top candle is formed when the opening and closing prices are close to each other, resulting in the characteristic small real body of the candle in this pattern. The full body of the candle (the space between the open and the close) is short – meaning that the first and last transactions of what is being analyzed were executed at similar prices. Our illustration uses the color red for bearish candles and green for bullish candles – although they are also commonly called black and white, respectively. A spinning top candle has a small body and long upper and lower wicks, indicating indecision in the market. The small body means that the opening and closing prices were very close, and the long wicks indicate that the highest and lowest prices of the day were far apart.
