A spinning top candlestick pattern reflects indecision in the market which simply means that buyer and sellers are pretty much at even. Spinning top is a candlestick pattern a substantially shorter body surrounded on both sides by two long candlestick wicks.
In other words, a spinning top candlestick if often regarded as a neutral candlestick.
My Opinion On Spinning Top Candlestick Pattern
But for my case, I don’t consider a spinning top candlestick pattern as a neutral candlestick at all.
Maybe in the perspective of buying and selling power, yes, it is a neutral candlestick by many traders simply because the sellers and buyers even out each out during the formation of the spinning top candlestick.
I consider a spinning top candlestick as a potential reversal candlestick in the context of where it forms on a price chart.
- If I see a spinning top candlestick pattern form on a major resistance level, I would consider it as a potential bearish reversal candlestick and I would place a sell stop order a few pips under the low of the candlestick. If price breaks the low of the spinning top candlestick and heads down, it just ads further confirmation that the downtrend maybe just about starting.
- Similarly, If I see a spinning top candlestick form on a major support level, I would consider it as potential a bullish signal. The confirmation is when the high of that spinning top candlestick pattern is broken and price starts rising up. So I do is to place a buy stop pending order a few pips above the high of the spinning top candlestick and then if price breaks it, I’m in on a buy trade.
This concept can be applied to trendlines, fibonaci retracment levels, price channels, chart patterns etc.
There’s a lot of setups where a spinning top candlestick patterns can be used as a buy/sell signal but the important thing is to make sure there are support/resistance levels involved before you make a trading decision.
Spinning Top Candlestick Formation:Why That Shape?
Every time you look at a candlestick, ask yourself these questions:
- what is the story here?
- Are the bears or bulls in control or are they even?
- where is this candlestick forming in relation to significant price levels like support/resistance levels?
Every candlestick has a story to tell.
It is the same with the spinning top candlestick pattern.
To understand the meaning of why the spinning top candlestick forms in that kind of shape, you need to go deeper and understand the reasons that cause it to form that way.
Let’s look at them, shall we?
Remember, in the beginning of this article, I said that a spinning top candlestick is considered a neutral candlestick?
Well, that is because the buyers are sellers are almost equal, that’s why it is considered neutral.
The chart below explains a lot why the spinning tops form the way they do:
The Color Of The Spinning Top Candlestick Does Not Matter
What do I mean by that? …When I mean color, I’m talking about the red color being bearish and green color being bullish.
You have to think in terms of where it forms:
- if a “green” spinning top forms on a resistance level, it should be considered a potential bearish signal even thought it is bullish(green).
- You apply the same logic if you see a “red” spinning top form on a support level: it should be considered a potential bullish signal even though it is bearish (red).
These two charts below explain what I’m talking about here.
Lets assume that on the first chart on the left, price is going up and hits a resistance level and moves down and the next chart to it on the right, price is going down and hits a support level and bounces up. At each of these two situations, the turning point was the formation of a green spinning top candlestick pattern. This chart shows the “green” situation:
This second chart shows the “red” situation:
See what I’m talking about?
Its all in the context of where the spinning top candlestick forms on your chart. That’s what’s important.
So the color of the spinning top candlestick pattern does not matter. It is where it forms that matters.
Not Every Spinning Top Candlestick Is Created Equal
I totally ignore any spinning top candlestick that does not form in levels of significance. What do I means by levels of significance?
Well, its these:
- support levels
- resistance levels
- trendlines (trendlines provide dynamic support and resistance levels)
- Fibonacci retracement levels
- price confluence levels
These are important price levels which I look for and identify in advance and then I wait to see if price reaches these levels.
And If price reaches these important price levels, next thing I do is watch to see if any reversal candlestick forms, including the spinning top, which would give me a clue of the most likely direction price is going to take so I prepare to take a trade based on the clue I get from these reversal candlesticks.
This is how you trade using price action. It is nothing complicated.
Price action trading is all about identifying important levels and then wait for price to hit these levels, then look for the buy/sell signals and for that, you use reversal candlesticks and then place your trade.
How To Trade The Spinning Top Candlesticks
Can you trade the spinning top candlestick on its own without considering other factors like support levels, resistance levels etc?
Try it if you want…
But to me, that does not make any sense at all.
The best way to trade spinning top candlesticks in my opinion is, as I said above, to trade them when they form in levels of significance.
The spinning top candlestick can be applied to Forex trading strategies like:
- trendline trading strategy
- support and resistance trading strategy
- diagonal channel trading strategy
What you do is place a pending buy stop/sell stop order a few pips above the high/low and wait for price to confirm your analysis with a breakout in the desired direction.
What I Really Like About Spinning Top Candlesticks
In other words, the stop loss distance is fairly small in comparison if you are trading with other reversal candlesticks that have very long bodies where you have to place your stop loss a fair long distance away thus drastically reducing your risk:reward ratio.
That in my mind is the real beauty about trading spinning tops.
Where to place stop loss?
Just a few pips under the low/high of that spinning top candlestick. Consider the spreads when you place stop loss.
If price is too close to your entry price, don’t do that, instead, look for the nearest swing low/high and place your stop loss there.
So there you have it, a bit of lesson on how to trade with the spinning top candlestick patterns.
- the spinning top candlestick pattern is considered a neutral pattern but in the context of where it forms, it becomes a reversal candlestick pattern and the breakout of the low/high is often the confirmation that price is going to reverse.
- the spinning top can be used as a buy/sell signal on many price action trading strategies that can be found on forextradingstrategies4u.com, so have a look around.
- spinning tops can form in all timeframes but not all spinning tops are created equal. The important spinning tops you should be watching out for are those that form on significant price levels and the main ones are support and resistance price levels.
- remember, the color of the spinning top candlestick does not matter.
As usual, I will end this article with a request that you tweet, like, share etc with your friends and fans. Maybe you are member of another forex blog/website/forum? Why not copy and paste the article link in there?