Spinning Top Candlestick Definition
The spinning top is a very interesting candlestick. Unlike the Marubuzo, it does not give the trader a trading signal with a specific entry or an exit point. The spinning top candlestick is an easy formation to recognize and can be helpful in determining whether a price reversal might occur.
What is the spinning top candlestick?
Spinning top candlestick is a pattern with a short body between an upper and a lower long wick. The candlestick pattern represents indecision about the future direction of the asset. It means that neither buyers nor sellers could gain the upper hand. There are two variations of this chart pattern: the bullish spinning top (green in colour) and the bearish spinning top (red in colour). The bullish formation occurs when the closing price is higher than the opening price, while the bearish pattern occurs when the opening price is higher than the closing price.
How is a spinning top candlestick formed?
A candlestick pattern forms when the buyers push the price up during a given time period, and the sellers push the price down during the same time period, but ultimately the closing price ended up very close to the open. In other words, the market has explored upward and downward options but then settles at more or less the same opening price – resulting in no meaningful change. After a strong price advance or decline, spinning tops can signal a potential price reversal if the candle that follows confirms.
What does a spinning top tell traders?
A spinning top tells traders that there is uncertainty in the market. The bulls sent the price sharply higher and the bears sent the price sharply lower, but in the end, the price closed near where it opened. This indecision can signal more sideways movement, especially if the spinning top occurs within an established range. It can also signal a possible price reversal if it occurs after a bullish or bearish trend.
A spinning top that occurs at the top of an uptrend could be a sign that bulls are losing their control and the trend may reverse. Similarly, a spinning top at the bottom of a downtrend could signal that bears are losing control and bulls may take control.
However, traders should not act on any candlestick pattern without considering other forms of technical analysis. Indicators or other forms of analysis, such as identifying support and resistance, may aid in making decisions based on candlestick patterns.
The Difference Between a Spinning Top and a Doji
Spinning tops and Doji both represent indecision. Dojis are smaller, with small real bodies and small upper and lower shadows. The spinning top has long upper and lower shadows. Both patterns occur frequently and are sometimes used to warn of a reversal after a strong price move. Both types of candlesticks rely heavily on confirmation. A strong move after the spinning top or Doji tells more about the new potential price direction than the spinning top or Doji itself.
Limitations of Using the Spinning Top
Spinning top candlesticks are a common candlestick pattern. Spinning tops frequently occur when the price is already moving sideways or is about to start. Many spinning tops won’t result in a reversal. Confirmation is required, but even with confirmation, there is no assurance the price will continue in the new direction.
- The spinning top is a candlestick pattern with a short body between an upper and a lower long wick.
- Since buyers and sellers both pushed the price, but couldn’t maintain it, the pattern shows indecision and that more sideways movement could follow.
- The two types of spinning top patterns are the bullish spinning top and the bearish spinning top.