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Moreover, no candlestick formation guarantees a trend reversal, not even a common candlestick pattern. Price movements can go in any direction and a candlestick pattern only reflects changing sentiment that has shown a tendency to reverse trends based on historical price behavior. During this period, indecisive candles may be more prevalent, including spinning tops and different types of doji candlestick pattern. The spinning top candlestick pattern represents indecision and uncertainty about an asset’s future direction.

Scenario #1: During an Uptrend – Followed by a Confirmation Candle

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. Also, note that there are several more Spinning Tops in this chart, but I’ve marked only the perfect ones to further emphasize my point. I argue that it takes more than a single candle to reverse a whole trend. A period of low volatility will be followed by a period of high volatility and vice versa. The Japanese yen remains under pressure, trading near a five-month low against the US dollar.

1. In which way, the price will eventually move is not certain; however, what is certain is the movement itself.
2. Traders must adjust their analysis based on the time frame, complicating the use of spinning tops for consistent decision-making.
3. These patterns, formed by the open, high, low, and close prices on a candlestick chart, depict the behavior of market participants and can indicate potential future price movements.
4. If it doesn’t, the reversal will not be confirmed, and the trader won’t need to wait for another trade signal.
5. Lessons learned from past market behaviors emphasize the importance of context and confirmation.
6. After all, if they were successful, the day would have resulted in a good blue candle and not really a spinning top.
7. In truth, though, the colour of the stick isn’t that important – while it can mean a stronger signal, both mean that bulls and bears are cancelling each other out.

Trend Confirmation in a Sideways Market

Spinning tops, on the other hand, have small real bodies but long upper and lower shadows. Both patterns are important in identifying potential market reversals or periods of consolidation. A pattern will tell the traders that they ate the market because there was much change between the opening and closing price. Traders do not act on any candlestick pattern without considering other forms of analysis. We consider other patterns and indicators then confirm the signal to make sure not to stray from your trading plan.

Spinning tops frequently occur when the price is already moving sideways or is about to start. A spinning top at the top of an uptrend could signify that bulls are losing 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 the reins. Some of these patterns have different names, depending on whether they are … The context in which the spinning top pattern appears can give clues about its reliability as a reversal signal.

On its own, the Spinning Top may be a continuation pattern with the market catching its breath momentarily while it consolidates or corrects before continuing with the trend. But, when analyzed in the context of the preceding candlesticks, it may become, or form part of a trend reversal pattern. This can be done by observing the price action after the spinning top candle forms. Look for a break above the candle’s high (bullish spinning top) or below the low (bearish spinning top) to confirm the direction of the next price movement. Sometimes when trading, you might see a market form two spinning tops in a row. But even in context spinning tops don’t necessarily offer a strong signal of upcoming movement.

Scenario #3: During a Downtrend – Followed by a Confirmation Candle

The Spinning Top represents a tug-of-war where neither side gains ground, reflecting market indecision. This can often precede significant shifts in market direction as traders reassess their positions and the market consensus evolves. In the case of the marubozu, the important aspect to look at is the color. A long green candle is considered a bullish candlestick pattern as it shows that the price has consistently increased since it opened that day. 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.

Patter tells traders

Once confirmation of the bullish Spinning Top pattern has been acquired, a trader with open short positions would look to cover their shorts and go long. Traders utilize spinning top candlestick patterns as valuable indicators to make informed trading decisions. This distinctive pattern is a critical indicator of potential reversals or continuation in the market, depending on the context in which it appears. Consider a scenario where a spinning top forms at the end of a strong bullish run in the EUR/USD forex pair. By also observing a moving average crossover and an RSI reading above 70, a trader might decide to short the pair, anticipating a downward correction. Combining spinning top patterns with other technical indicators enhances their reliability.

A spinning top can have a close above or below the open, but the two prices are always close together. Moreover, successful implementation of spinning top patterns necessitates a well-defined trading plan and strategy. Traders should adopt risk management tools, like stop-loss orders, to mitigate potential losses stemming from false signals or unexpected market turns. A disciplined approach that includes continuous monitoring and adjustment of strategies based on market conditions is essential for leveraging spinning tops effectively in trading. Spinning tops are particularly relevant to traders due to their potential to signal market turning points, especially when they appear after pronounced trends.

1. The small body indicates that the opening and closing prices were close, while the long shadows suggest significant volatility and a struggle between buyers and sellers.
2. If the spinning top is seen at the bottom of a downtrend, it could mean that a bullish reversal might happen.
3. The candle at A is a black spinning top becausethe body is black, small, and the candle hasshadows taller than the body.
4. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination.
5. Additionally, combining the spinning top with other technical analysis tools like moving averages or RSI enhances the reliability of the trading signals.
6. For instance, if a spinning top forms at the top of an uptrend, it may signal that the upward momentum is waning, suggesting a potential move downward.

However, if following candlesticks indicate continued buying pressure, the anticipated reversal might not materialize, leading to erroneous trading decisions. The doji candlestick, on the other hand, has a small body, where the opening and closing prices are very close or equal, resulting in a cross-like shape. It also represents market indecision but with a focus on the relationship between the opening and closing prices. Doji patterns indicate that buyers and sellers spinning top candlestick are in equilibrium, and a potential trend reversal or continuation may occur. In the world of technical analysis, candlestick patterns have long been relied upon by traders to uncover potential market trends and reversals.

If you do spot a Spinning Top after an uptrend or a downtrend, it may signal a potential reversal. Spinning Top candlesticks usually have small bodies with upper and lower shadows that exceed the length of the body. Trading around a spinning top can also pose some problems since the candle can be quite large, from high to low. Everything that you need to know about the Spinning Top candlestick pattern is here. Three soldiers are candlesticks that are all the same color, with decent size bodies.

So the next time you see either a Spinning top or a Doji individually or in a cluster, remember there is indecision in the market. The market could swing either way, and you need to build a stance that adapts to the expected movement in the market. FXCC brand is an international brand that is registered and regulated in various jurisdictions and is committed to offering you the best possible trading experience. There is no right or wrong answer; it just comes down to how you calculate your risk and reward on each trade. In the above example of the stock KOS, the stock developed a spinning top after a strong move on the open. If you are not familiar with volume candles, please check out our article here.