How to Trade the Spinning Top Candlestick Pattern

The bullish engulfing pattern and the ascending triangle pattern are considered among the most favorable candlestick patterns. As with other forms of technical analysis, it is important to look for bullish confirmation and understand that there are no guaranteed results. Now think of the spinning top candlestick pattern along with all its three parts, the small real body, the upper shadow and the lower shadow. So, overall, it indicates that nobody actually won at the marketplace and that’s why spinning top candlestick pattern means indecision. The best way to learn to read candlestick patterns is to practise entering and exiting trades from the signals they give.

If they’re spun precisely and very quickly, they remain balanced on their tips due to inertia. In the world of Japanese candlesticks, spinning tops were the inspiration for the naming of the Spinning Top candlestick pattern. Similar in shape to its toy counterpart, with a short body and two long wicks, the Spinning Top is a common but important candlestick signal. To learn more about this unostentatious candlestick, please scroll down . Trading the spinning top candlestick pattern involves waiting for confirmation of a potential trend reversal or consolidation period in the market.

Understanding Spinning Top Candlesticks

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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. The opposite is true for https://g-markets.net/ the bullish pattern, called the ‘rising three methods’ candlestick pattern. It comprises of three short reds sandwiched within the range of two long greens.

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The small real body is the main configuration of the spinning top candle. The shadow length is what separates a spinning top from a short black candle. A bullish engulfing line is the corollary pattern to a bearish engulfing line, and it appears after a downtrend. Also, a double bottom, or tweezers bottom, is the corollary formation that suggests a downtrend may be ending and set to reverse higher. Similar to the engulfing pattern, the Piercing Line is a two-candle bullish reversal pattern, also occurring in downtrends. It consists of consecutive long green (or white) candles with small wicks, which open and close progressively higher than the previous day.

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. Derivatives do not allow ownership of the underlying assets but tracking price movements gets easy. This means that it becomes easy for you to trade rising and falling markets after both, bullish spinning top candlestick pattern and bearish Spinning Top candlestick pattern. If you leave the lower shadow and think about what happened in the market, it indicates that the bulls tried their best to push the market higher, however they were not successful. By the end of the timeframe the price actually came back to almost the same level where it started.

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This suggests that such small bodies are frequently reversal indicators, as the directional movement (up or down) may have run out of steam. Careful note of key indecision candles should be taken, because either the bulls or the bears will win out eventually. This is a time to sit back and watch the price behavior, remaining prepared to act once the market shows its hand.

• Conversely, if the spinning top occurs at the top of an uptrend, it could suggest a bearish reversal.
• Similarly, a spinning top at the bottom of a downtrend could signal that bears are losing control and bulls may take the reins.
• This indicator can help you to predict price movements because it shows the speed and momentum of the market over a specific timeframe.
• 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.
• The candle’s colour doesn’t really matter because the open and closing price points are close to one another.

Spinning tops are quite similar, but their bodies are slightly larger, where the open and close are close to each other and not same. The main difference is a spinning top always has long wicks or shadows on either side, indicating a large variance in the high and low. A spinning top also signals weakness in the current trend, but not necessarily a reversal. If you look at a spinning top in isolation it does not mean that much.

The upper shadow of spinning top candle

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. Both patterns suggest indecision in the market, as the buyers and sellers have effectively fought to a standstill. But these patterns are highly important as an alert that the indecision will eventually evaporate and a new price direction will be forthcoming.

The most common method used by technical traders to confirm a trend reversal is waiting for the formation of the succeeding candle. Using the example above, the succeeding candle should close lower than the wick of the Spinning Top. Without this confirmation, the signal of trend reversal may not be established, and uncertainty remains in the market. It is formed of a long red body, followed by three small green bodies, and another red body – the green candles are all contained within the range of the bearish bodies. It shows traders that the bulls do not have enough strength to reverse the trend.

Examples of Spinning Top Candlestick Patterns

The spinning top candlestick is an easy formation to recognise and can be helpful in determining whether a price reversal might occur. Learn more about this pattern and how you can trade when you recognise it. However, a trader needs to apply technical indicators and signals to analyze the trading movements. Such an analysis will protect the trader from straying away from the trading pattern and stick within the risk management plan. Like most of the other patterns, it also suggests the imminent change in trend. Experts emphasize that the Spinning Top pattern just shows the state of confusion among traders about the direction of the market.

Investors should use candlestick charts like any other technical analysis tool (i.e., to study the psychology of market participants in the context of stock trading). They provide an extra layer of analysis on top of the fundamental analysis that forms the basis for trading decisions. This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you.