Spinning Top Candlestick Definition
The lower shadow connects the low of the candle with the real body of the candle. Depending upon whether it is a green or red candle the lower shadow connects the close to the open or closing price of the day. The long wicks or shadows of spinning top mean that both bulls and bears tried to push the market in either direction but did not succeed. The small real body of spinning top means that price eventually closed very close to the open price and there was no clear winner on that day or timeframe.
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Spinning Top Candle Stick Pattern
The doji candlestick pattern of course has long upper and lower wicks. The doji candlestick pattern as you might already know signals indecision in the markets. The spinning bottom candlestick pattern is formed near the lows. When the spinning bottom candlestick forms, it is a signal that the sellers who were in control of the downtrend are losing interest. Therefore, when you a see a spinning bottom candlestick pattern, you can expect price to reverse direction and potentially move to the upside. The formation of the candlestick indicates a level of indecision among buyers and sellers, which depicts price reversals, hence creating a neutral pattern.
What is unique about these candlestick formations is the fact that the real body is very small, but the upper and lower wicks on both sides of the candlestick body are long. A https://1investing.in/ generates potential reversal trade ideas line hanging man, doji, hammer, candle formations. We recommend waiting till the next few candles to finish formation before making any trade decision. However, it is not wise to make trade decisions depending on one candle. So experts often wait for a few next candles to ensure future price directions.
In the above example, you can see how the candlestick was narrow relative to the volume candle that preceded the gap down. This light volume eating into a gap with a fat volume candle above increased the likelihood of the stock rolling over and that’s exactly what happened. In short, these candles show both price movement but also incorporate volume which determines the width of the candle.
Bullish/Bearish Spinning Top Pattern in Candlestick Trading
To learn even more about candlestick, check out this awesome video from YouTube here. The second stop, which is labeled alternate stop, is where you could place a stop beneath the most recent swing low. This stop will expose you to more risk but will give the stock more room to move in the event there is further consolidation prior to the continuation breakout.
The confirmation of this weakness may be the emergence of black candles after thespinning top. When this ideal pattern is formed, depending on validation from other technical tools, you can easily look for long trading opportunities in the market. Make sure that the spinning bottom pattern is validated by other means such as a buy signal or when the pattern forms near the support level that is recognized. In this article, we’re going to take a closer look at the spinning top candlestick pattern. We will cover its meaning, definition and ways you can improve the pattern. In addition to that, we’ll also share a couple of example trading strategies.
It tells traders that the opposite direction of the market has the potential to grow in the market. The bulls are losing control if the spinning top pattern occurs at the uptrend. Thus, when you see a spinning top candlestick pattern, then bears are losing control. A bearish spinning top pattern is essentially the reverse of a bullish spinning top pattern, with the spinning top occurring at the top of a prevailing uptrend in a financial asset’s price. It will be a small, red candle after a succession of green candles, with the same long wicks above and below, forming a highly symmetrical candle. Spinning top candlesticks are typically small candlesticks with a bigger real body that are found on stock charts near both support and resistance levels and signal indecision.
They take a short at the break of the low and use a candlestick close above high as a stop. Some of the top recommended tools that you hould use in trading are the bullish and bearish engulfing, hammer, triangle, VWAP, and evening and morning stars, respectively. It’s important to use other technical indicators along with common sense and trading experience – which only comes with time spent practicing and learning. Some people might even call it a ‘Doji’ candle, but the shadows are large.
- When it happens, seasoned traders opt for wait-and-watch policy and don’t plan entry or exit until a trend is confirmed.
- In short, these candles show both price movement but also incorporate volume which determines the width of the candle.
- Again, a candle doesn’t always represent a potential trend reversal; it can also be a short-term breather of a bigger continuation pattern as in this example.
- It will confirm that the price action will continue in the same direction.
- A spinning top is acandlestickpattern that has a shortreal bodythat’s vertically centered between long upper and lower shadows.
This happens more often that the other possibility which is bears actually taking control and pushing prices lower. For a spinning top to work as a reversal pattern , it generally will need some more confirmation signals such as multiple spinning tops , loss of momentum , lower volume etc. A spinning top candlestick after an extended uptrend or downtrend may indicate a start of reversal , however, needs confirmation from other reversal signals before one can enter the trade. A Red spinning top at the end of an extended uptrend and a green spinning top at the end of an extended downtrend has more chance of reversal happening. Dojis are smaller, with small real bodies and small upper and lower shadows. Both patterns occur frequently and are sometimes used to warn of a reversal after a strong price move.
It means for every $100 you risk on a trade with the Spinning Top pattern you make $27.1 on average. The bulls send the price too high, and bears send the price extremely low, but in the last, the price seems to close nearby open. Navdeep has been an avid trader/investor for the last 10 years and loves to share what he has learned about trading and investments here on TradeVeda. When not managing his personal portfolio or writing for TradeVeda, Navdeep loves to go outdoors on long hikes. They successfully indicate market indecision and the slowing of momentum. Spinning top candles tend to be nearly symmetrical, with upper and lower wicks of approximately the same size.
How to handle risk with the Spinning Top pattern?
It’s important to note that trades cannot be taken solely on the basis of ‘Spinning Tops’ getting formed on the chart. A red candle day represents a bearish day and a blue candle represents a bullish day. There could be a Gap opening, but the gap could be filled intra day hence Gaps as such does not decide the colour of the candle.
The single candle of the Spinning Top candlestick has long wicks that extend higher and lower its short body. Such a pattern is formed when the prices rapidly move in one direction before a sudden reversal of the trend in an inverse direction. It is relatively easy to spot spinning top patterns when looking at a candlestick chart, as they usually come at the end of prevailing uptrends or downtrends.
A trader should look for a breakout candle and enter above the low of the spinning top on the sell side and place the stop loss at the high of the spinning top. Traders need some other confirmations , such as short term trendline break , trend continuation patterns square meter symbol etc. A trader should look for a breakout candle and enter above the high of the spinning top on the buy side and place the stop loss at the low of the spinning top. The upper shadow is the one connecting the high of the day to the real body of the candle.
Learn more about trading with candlesticks
ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates. Increase your income and get compensated for your trading knowledge with ThinkInvest, putting you in control. No matter your experience level, download our free trading guides and develop your skills. If you are someone who doesn’t know much about this pattern, then you don’t need to stress as we have covered pretty much everything in this guide, and it is suitable even for beginners. My name is Navdeep Singh, and I have been an active trader/investor for almost a decade.
If you are not familiar with volume candles, please check out our article here. Trading is challenging, and there isn’t one perfect system, indicator or candlestick that is infallible. When it comes to the speed we execute your trades, no expense is spared. Keep in mind all these informations are for educational purposes only and are NOT financial advice. In simple words, the market seems to explore upward or downward options but then settles at more or less the same opening price, which is most likely to result in no meaningful change.