The Spinning Top Candlestick and Trend Indecision ????
This is consistent with The Predictive Power of Candlestick Patterns in Financial Markets report by the TARE, which suggests 53-54% success rates. For example, if a spinning top forms just as price breaks out of a falling wedge, you might use its height to estimate the upside target. This is a more advanced strategy that requires experience spinning top candle in pattern recognition, but it can offer higher-probability targets when the setup aligns.
Characteristics of the Spinning Top Candlestick Pattern
So, a spinning top in a downtrend is a bearish spinning top, while one in an uptrend is a bullish spinning top. However, the one challenge is that a beginner may only trade based on seeing the spinning top without considering other factors. Another challenge is that a newbie could mistake other candles for spinning tops, given the potential similarities. Traders will mark the key support or resistance levels using a higher time frame and target whichever one is nearby to maximize their profit. The second and last example is a bullish spinning top on the Ethereum daily chart.
- We simply want to show that even “neutral” candles can have a bias toward a specific direction.
- Spinning tops are a common candlestick pattern, which means they work in conjunction with other forms of technical analysis.
- These advanced strategies enhance the effectiveness of spinning tops, providing more precise and reliable trading opportunities.
- In contrast, a long red candle is regarded as a bearish candlestick pattern as it shows that the price has continued to go down since it opened that day.
- The spinning pattern, with its distinctive appearance and implications, is an invaluable tool in the trader’s toolkit.
- While the name spinning top might suggest a market peak, this candlestick pattern does not indicate a top.
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. In order to form a complete trading strategy, you need to understand the basic math of trading, order types, and trading psychology. Even more importantly, you need to develop your own edge and learn risk management. And if you really want to take it all the way, look into options and trading automation. We will look to short a failed breakout at an important swing high or resistance level, within the context of an overall downtrend.
Typically, it indicates indecision in the market as neither the buyers nor the sellers dominate the trading session. That said, this pattern can also signal potential trend trend reversals. If such patterns appear at the end of a downtrend, it may mean that an uptrend is on the horizon. On the other hand, if this pattern forms at the end of an uptrend, it means a downtrend might be forthcoming. That said, the reversal is significantly dependent on the confirmation, which the next candle in the chart provides. They have a small body with long, equal-length shadows on both sides, reflecting a balance between buyers and sellers.
How to Profitably Trade the Spinning Top Pattern
It appears so frequently that if you want to actually use it, you must be able to understand the context within which it is appearing. Whereas a period of low volatility is when the market just pauses without making any meaningful moves. You already know that a market will cycle between periods of low volatility and high volatility.
- The spinning top candle can provide a well-rounded view of market dynamics and potential price movements when used alongside bullish candlestick patterns or support and resistance levels.
- As you can see in the picture, although they look similar at first glance, there are some key differences.
- The pattern was then followed by a bullish candle that served as a reversal—indicating that market sentiment had shifted from bearish to bullish.
- In the second case, the white spinning top appeared after several days of sideways movement, with July 19 forming an inside bar — another candlestick signaling indecision in the market.
A simple way to tell them apart is by the body – to qualify as a doji candle, the body can represent up to 5% of the candle’s range – any more and it is a spinning top. All of the data that is available suggests that, performance-wise, both bullish and bearish spinning tops behave in the same way. Even at a more abstract level, both of these variations suggest the same thing – indecision. However, context is key here – looking at the previous candles, it is clear that the index was in a sustained downtrend.
While it doesn’t necessarily indicate a trend reversal by itself, it’s often found within patterns that do. Spinning tops provide valuable insights into market behavior through their unique structure. These patterns emerge when neither buyers nor sellers take control, forming a small body with long upper and lower shadows. They can indicate potential trend reversals or continuations depending on market context. Every technical indicator, including the spinning top candlestick, comes with its set of limitations.
A green spinning top (bullish) may suggest that selling pressure is weakening, especially when it appears at the end of a downtrend. On the other hand, a red spinning top (bearish), with a close slightly below the open, often hints at waning buying pressure when seen near market highs. Let’s take a closer look at the types of the spinning top patterns and the related strategies to use in your trading routine. HowToTrade.com helps traders of all levels learn how to trade the financial markets. As you can see in the USD/CHF 1H chart above, the spinning top chart pattern appears at the top of a trend and has the following features – small body, long upper and lower shadows.