The spinning top candlestick pattern is a common sight in trading charts, reflecting a battle between buyers and sellers where neither side has gained the upper hand. This unique pattern is characterized by a short body with long wicks on both sides, and is often seen as a neutral indicator of market indecision.
As the opening and closing prices are typically close together, the spinning top can represent an important moment of pause in a rapidly moving market. Traders who can identify and interpret the spinning top pattern may be able to gain valuable insights into market sentiment and potential price movements.
My Opinion On Spinning Top Candlestick Pattern
But for my case, I don’t consider a spinning top candle 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, Fibonacci retracement 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.
How the Spinning Candlestick is Formed
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?
A spinning top candlestick pattern is formed when the opening and closing prices of an asset are very close to each other, but there is significant movement in both directions throughout the trading session. This creates a candlestick with a small real body and long upper and lower shadows or wicks.
The length of the shadows indicates that there was volatility during the trading session, but the fact that the closing price is near the opening price suggests indecision among traders about the direction of the asset’s price. As a result, a spinning top candlestick pattern often signals a potential trend reversal or consolidation period in the market.
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?
- 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?
You can, but it is not something you will find much success with.
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.
Trading the spinning top candlestick pattern involves waiting for confirmation of a potential trend reversal or consolidation period in the market.
Here are some steps to consider:
- Identify a spinning top candlestick on a chart – Look for a candlestick with small real body and long upper and lower shadows.
- Analyze the context of the spinning top – Consider the direction of the prior trend, support and resistance levels, and other technical indicators to determine whether a reversal is likely.
- Wait for confirmation – Look for additional signals such as price action patterns, technical indicators or fundamental analysis that confirm a potential trend reversal before entering a trade.
- Place stop-loss orders – Always place stop-loss orders to limit potential losses if the trade does not go as expected.
- Set profit targets – Determine profit targets based on support and resistance levels, Fibonacci retracements or other technical analysis tools.
Trading the spinning top candlesticks can be profitable, but it requires patience and discipline to wait for confirmation before entering trades. It’s important to always manage risk by using stop-loss orders and setting realistic profit targets.
The spinning top candlestick can be applied to Forex trading strategies such as these:
- trendline trading strategy
- support and resistance trading strategy
- diagonal channel trading strategy
Ensure that whatever strategy you use, that you have compiled a complete and tested trading plan.
How Traders Use a Spinning Top Candlestick Pattern
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.
Traders use the spinning top pattern not only as a trade entry technique, but also setups and to understand the current market condition.
In conclusion, the spinning top candlestick pattern is a powerful reversal/continuation pattern that can be used for both buy and sell signals in many Forex trading strategies. When trading with this candlestick pattern it’s important to wait for confirmation before entering trades, manage risk by using stop-loss orders, and set realistic profit targets.
The spinning top candlestick pattern can be a great tool to help traders improve their risk : reward ratio and make more profitable trades.
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