The Spinning Top candlestick pattern is a unique variation on the wide Japanese candlestick repertory. Spinning Top candles, which are sometimes connected with market hesitation, might give crucial support for a trading plan. The following are the article's primary topics of discussion:
What is the pattern of the Spinning Top candlestick?
What is the origin of the Spinning candlestick?
How to trade the Spinning Top candlestick chart pattern?
Constraints on the Use of the Spinning Top Candlestick
What is the pattern of the Spinning Top candlestick?
A spinning top is a candlestick design with a short actual body and extended upper and lower shadows. The candlestick pattern indicates ambivalence over the asset's future path. This means that neither buyers nor sellers may gain an advantage, which is why the pattern is categorized as neutral. Similar to a doji pattern, a spinning top pattern is generally neutral, however many do result in reversals.
When buyers drive the price higher over a specific time period and sellers push the price down during the same time period, but the closing price ends up extremely near to the open, a candlestick pattern appears. Following a sharp price surge or collapse, spinning tops might indicate a possible price reversal if the subsequent candle verifies. The close of a spinning top might be higher or lower than the open, but the two prices are always close together.
In an ideal world, these two wicks would be identical in length, with a short body and a minimal spread between the opening and closing prices.
This chart pattern comes in two flavors: the bullish spinning top (in green) and the bearish spinning top (in red) (red in colour). When the closing price is more than the opening price, a bullish pattern exists, but when the opening price is greater than the closing price, a bearish pattern exists.
Significant Takeaways
The vertical line defines the wick, while the horizontal lines define the body.
A spinning top is a candlestick design with a short actual body and extended upper and lower shadows.
The genuine body should be tiny, with minimal variation in price between open and close.
The length of the wick varies according to the price range, with the top representing the highest and the bottom being the lowest. Additionally, the height of the body might fluctuate, as it shows the difference between the opening and closing prices.
How is a candlestick with a rotating top formed?
The price movement within the Spinning Top candle reflects buyers and sellers reversing their positions, resulting in a comparable open and close price level. The benefit of including the Spinning Top candlestick pattern in a trading strategy is that it is simple to detect and requires little implicit time investment.
A spinning top candlestick is generated when bulls drive the price above the starting price and then the bears push it back down before the market closes. Alternatively, when negative traders drive prices lower than the open price then optimistic traders drive them back up before to the market closing.
In other words, the market has investigated both upward and downward price movements but finally settles at or around the starting price — resulting in no major change.
The Spinning Top pattern has the same fundamental structure and logic as the Doji pattern, but it has a broader candle body, indicating a more considerable price change over the candle time.
Given that both buyers and sellers pushed the price higher but were unable to sustain it, the pattern indicates hesitation and the possibility of more sideways movement.
Spinning Top Bullish and Bearish
A bullish spinning top is produced when the market opens much higher than the open price and then the sellers come back in and push it down towards the end of the day or candle period.
A bearish spinning top pattern, on the other hand, occurs when the price opens dramatically lower and then buyers come back in. In each of these instances, the price is often near to or below the opening price.
Doji vs. Spinning Top Candle
The spinning top candle resembles the doji candle rather closely. In technical analysis, the doji candle is another candlestick pattern that indicates market hesitation, and both of these candlestick patterns indicate the possibility of a price reversal of the existing trend.
However, certain critical distinctions separate these two candlestick formations.
To begin, the doji candle resembles a cross visually because to its short body and smaller upper and lower shadows. Typically, the starting and closing prices are equal. In comparison, the spinning top candle features a larger body and longer wicks.
The spinning top and doji candlestick patterns are quite common across all time frames and all cryptocurrencies. Both candlestick patterns are ultimately dependent on the confirmation provided by the subsequent candle. If the spinning top and doji candles are followed by a significant move in the opposite direction of the existing trend, it is reasonable to believe that a trend reversal is more likely.
Another distinction between the Doji and the spinning top is that the Doji is more likely to form at the trend's peak or bottom. On the other hand, the spinning top occurs at the chart's top or middle.
How to Interpret Spinning Top Candlestick Patterns
A spinning top at the zenith of an uptrend may indicate that the bulls have lost their footing and the trend is going to reverse. When a spinning top forms at the bottom of a downtrend, it indicates that the bears are losing power and the bulls may seize control. This means that a spinning top may signal an impending significant shift in a trend. However, confirmation from the subsequent candle is critical in determining if prices would fall following the rise.
Active traders should avoid trading immediately after the development of a spinning top and instead wait for technical indicator confirmation following the formation of the next candle. It will assist in eradicating market doubts, since the signal trend reversal would have been established.
For instance, if a bullish candlestick forms after the spinning top near the bottom of an uptrend, the trader might utilize it as an entry signal. Similarly, if a bearish pattern forms near the peak of an upswing, it may be utilized as an exit opportunity.
How should the Spinning Top pattern be used to manage risk?
We analyzed 4120 markets over the previous 59 years and discovered 1 134 089 Spinning Top events.
Markets printed one Spinning Top design every 14 candles on average.
The greatest winning streak reported in 2:1 R/R trades was 30, while the longest losing streak was 157. A trading strategy that is entirely based on this pattern is not recommended. In any case, ensure that you practice sound risk management.
Examples of Spinning Top Candles
On the price chart, the spinning top candlestick pattern is easy to identify. The graphic below illustrates a spinning top candlestick formation.
Two examples of the spinning top candle may be seen on the left-hand side of the above 4-hour Bitcoin price chart. As a result, the price moves higher, and one may have purchased BTCUSD at those levels with a protective stop-loss immediately below the spinning top candle low. The development of two successive spinning tops offers more confirmation to the bullish case scenario.
The second spinning top candlestick pattern forms near the end of an upswing and is followed by a significant price reversal. The subsequent huge falling candles signal the impending reversal.
The final incidence of the spinning top candle happens following a period of price decline. This bullish reversal signal appears at a critical support level from which preceding candlesticks bounced. As a result, this spinning top candle signals an upward rise.
Assume you're following the share price of Aston Martin, which begins the trading day at 442p. As sellers join the market, the share price begins to move, eventually falling to 430p. Buyers begin to push back, and the share price reaches a high of 455p before settling at 445p. As seen below, this results in a bullish spinning top candlestick.
The Spinning Top Candle: How to Trade It
The majority of traders use indicators to confirm the spinning top signal and to gather additional information about price trends. Trading the spinning top pattern may be accomplished through the use of derivatives such as trading contracts for difference (CFDs). This means that the trader is not required to hold the underlying assets but may just speculate on their price behavior. To examine trading movements, a trader must employ technical indicators and signals. This type of analysis will prevent the trader from deviating from the trading pattern and staying within the parameters of the risk management strategy.
Trading the Spinning Top candle requires a knowledge of how it is generated and its relationship to the broader market trend. The following example walks you through the process of identifying, validating, and executing a real-world FX transaction using the Spinning Top.
When you notice the spinning top candlestick pattern, you can trade it using derivatives such as spread bets or contract for difference (CFDs). You do not acquire ownership of the underlying assets when you trade derivatives; rather, you bet on their price changes. This means that you can trade rising or falling markets in order to profit from bullish or bearish spinning tops.
Live traders should avoid entering a transaction soon after a Spinning Top forms, preferring to wait for confirmation. Technical indicators, fundamental variables, or oscillators can all provide confirmation, as illustrated by a stochastic oscillator. As demonstrated by the blue circle, the stochastic verifies a brief entrance.
The most often employed technique by technical traders to validate a trend reversal is to wait for the subsequent candle to form. In the preceding example, the next candle should shut lower than the Spinning Top's wick. Without this confirmation, the trend reversal signal may not be established, and market uncertainty may persist.
With a sample account, you may practice trading the spinning top chart pattern. With £10,000 in virtual money, you'll be able to initiate and cancel positions risk-free.
Takeaways for trading the Spinning Top candlestick pattern include the following:
Locate a candle with a small body and both sides having lengthy wicks.
Utilize trend lines or technical indicators to determine market direction.
Prior to entering a deal, wait for confirmation.
If confirmation is received, execute the deal in the specified direction.
Constraints on the Use of the Spinning Top Candlestick
Regrettably, spinning top candles are not the end-all solution. As with other candlestick designs, the spinning top candle has several limits. While the spinning top candlestick is widely seen, it does have some disadvantages in that it typically appears during sideways movement, which goes to nowhere.
To begin, the more frequently a pattern emerges on the price chart, the greater the likelihood of entering a terrible trade, given the price movement's hesitation. To circumvent this problem, be more picky about the spinning tops you exchange. For instance, cryptocurrency traders should restrict their attention to higher time frames, such as the daily chart, which often create higher-quality setups due to their tendency to dismiss intraday noise.
Second, the spinning top candlestick formation requires further confirmation than other candlestick patterns. Trade confirmation is a valuable tool to have in your trading arsenal regardless of the candlestick pattern, not simply the spinning top. However, no approach is 100% certain that the price will revert or move in the same direction as the existing trend. Even if confirmation is obtained, there is no guarantee that the price will remain in the new direction.
Calculating the payoff potential of a spinning top trade is also challenging, since the candlestick pattern lacks a price goal or exit strategy. Traders must employ additional candlestick patterns, methods, or indicators in order to locate a profitable exit.
Finally, because the spinning top candle has extended upper and lower shadows, crypto traders will be compelled to use larger stop-loss orders to protect themselves in the event that the market swings against their initial holdings. This also results in a lower risk-to-reward ratio, as the trader or investor must accept a greater risk in exchange for a possibly smaller gain. If confirmation occurs after a spinning top and a trade is entered, setting a stop loss above or below the spinning top's high/low might result in an excessive risk that outweighs the possible return.
Utilizing various time frame analyses is one approach to circumvent this difficulty. For instance, if a spinning top candlestick appears on a daily chart, a cryptocurrency trader may zoom into the 1-hour chart — and utilize additional trading tools — to better timing the market. This might inflate their risk-to-reward ratio.
What message does a spinning top provide to traders?
A spinning top indicates market uncertainty, as there was little movement between the starting and closing prices. This might indicate that more neutral moves are anticipated, or that a price reversal is imminent.
If the spinning top is spotted near the bottom of a downtrend, it may indicate the possibility of a positive reversal. On the other hand, if it happens at the apex of an uptrend, it may indicate a negative reversal.
Traders should, however, refrain from acting solely on candlestick patterns without examining other kinds of technical analysis. Always take into account other patterns and indications, check the signal, and adhere to your trading plan and risk management approach.
The Verdict
In the financial market, the spinning top pattern is a generally easy-to-see candlestick pattern. We have examined how it forms and how to effectively use it in the financial market in this post. We've also discussed the hazards associated with utilizing the pattern and some of the more popular alternatives.
In summary, the spinning top candlestick pattern is most beneficial when it happens in a valuable location, such as critical support and resistance levels, or when it is combined with other technical indicators that can assist confirm price movement. Bear in mind that technical analysis is not intended to be employed independently. In the long run, no single approach can consistently generate positive returns. Technical analysis' primary purpose is to offer traders with a statistical edge through the use of numerous streams of data. Numerous patterns and indicators are utilized in conjunction with one another to indicate profitable trading opportunities. When employed correctly, the spinning top candlestick pattern may indicate trend reversals, making it a critical tool for traders.
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