It is easy to spot, frequently appears in charts across different time frames, and can provide early signals of potential trend reversals. When it appears at the end of an uptrend, it may signal a bearish sentiment, while at the end of a downtrend, it can indicate a potential bullish reversal. Spinning tops are a type of candlestick pattern commonly used in the forex market to identify possible price reversals. These patterns are formed when the opening and closing prices of a currency pair are very close, creating a small body with long upper and lower shadows. In this article, we will explore the characteristics of spinning tops, their significance in the forex market, and how traders can use them to make profitable trades.

• The significance, though, has to do with the length and their relationship to each other.
• That said, due to its ease of identification, it also simplifies planning around it.
• Spinning tops are characterized by small bodies and long upper and lower shadows.
• In conclusion, understanding candlestick patterns like the spinning top is crucial for informed trading decisions.
• Again, the color is irrelevant for the pin bar; the important aspect to look at is the shape.

Also, note that there are several more Spinning Tops in this chart, but I’ve marked only the perfect ones Poloniex Crypto Exchange to further emphasize my point. And if you can correctly understand the context within which this low volatility period is appearing, you can put yourself in a position to take advantage of the increased volatility that follows. Whereas a period of low volatility is when the market just pauses without making any meaningful moves. You already know that a market will cycle between periods of low volatility and high volatility.

A bullish bar adds confluence to this false break and serves as our entry trigger. When a breakdown fails, all those who shorted at the breakdown will see their stops getting hit and start covering their shorts, which further adds to the upward momentum. The entry could have been taken just before the close, or at the next day’s opening. In this example, the price first had a superb move higher, forming the pole of the flag. Also, it is safe to assume that most traders are tracking more than one stock/pair. 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.

Scenario #2: During an Uptrend – Followed by a Continuation Candle

As seen in the short body of the candlestick, the market didn’t change much when it closed versus when it opened. When you think of the Spinning Top candlestick pattern, think of an actually spinning top. Spinning Top candlesticks usually have small bodies with upper and lower shadows that exceed the length of the body. In the uptrend, the Spinning Top shows that the buyers are not eager to buy more, and a reversal is possible. Conversely, in a downtrend, the appearance of Spinning Top tells that sellers are losing interest, and there is a possibility of an upward movement of the price. I’ll be the first to admit that spinning tops aren’t the most useful of candlesticks.

For instance, a reversal anticipated after an uptrend spinning top should see prices declining in the subsequent candle. Conversely, traders must exercise caution and await further confirmation signals if the expected reversal fails to materialise. A confirming candlestick would typically stay within the established sideways channel in a ranging market, reinforcing ongoing indecision.

Does a spinning top candlestick pattern guarantee a trend reversal?

This example underscores the importance of context and confirmation when interpreting spinning top signals. As shown, we can observe a downtrend before the spinning top candle occurred. The pattern was then followed by a bullish candle that served as a reversal—indicating that market sentiment had shifted from bearish to bullish.

• As mentioned earlier, the Spinning Top can appear in an uptrend or downtrend, so it provides both buying and selling forex trading signals.
• Conversely, in a downtrend, another top emerges, indicating possible weakening bearish momentum.
• This period is usually referred to as ‘pause days’ and is characterized by relatively shorter candles after a parabolic move and before the asset moves once again with high momentum.
• However, this approach may prove too rigid or expose traders to excessive risk, depending on the pattern’s formation.

How to Trade the Spinning Top and Doji Candlestick Pattern

Furthermore, it’s often challenging to differentiate it from other similar candlestick patterns, such as the doji. The spinning top candle pattern is a valuable tool for forex traders to identify potential reversals or consolidations in the market. You can enhance your trading skills and profits by understanding how to identify and interpret this pattern.

A target was again placed at a level that offered double the reward versus the risk taken on this trade setup. The spinning top forex pattern that appeared on the far right of this chart, however, led to the strongest decline after the RSI line went into an overbought condition. Another strong indication that price was likely to decline was when bearish divergence showed up between the previous high and the higher high of this market. The spinning top forex pattern consists of one candlestick that has a small green or red body that is centred between a long upper and lower wick.

A period of low volatility will be followed by a period of high volatility and vice versa. Due to this indecision and uncertainty, it is hard to know where the market will head next. It’s easy to differentiate between the two because one has a body (the Spinning Top) and the other does not (the Doji). The confirmation can come from oscillators like the Stochastics, RSI or MACD. This will help you in predicting exactly when price is going to reverse from a level or zone.

A Spinning Top Candle: Benefits and Drawbacks

A trader went long on the closing of the bullish candle that followed the spinning top. A take-profit target was placed at the closest resistance level, and a stop-loss was placed below the low of the spinning top candlestick. The spinning top candle is a key tool in technical analysis, highlighting moments of market indecision. This article explores what spinning tops represent, how they differ from similar patterns, and how traders can interpret them to refine their strategies across various market bitit review conditions.

The first variation above shows a bearish-colored spinning top followed by a bullish-colored spinning top candle. In both upward and downward appearances, it is the candle next to the Spinning Top you need to observe. For example, if you think that price will reverse in an uptrend, the candle next to the Spinning Top must confirm a price drop.

The spinning top on the left of the chart formed during a consolidation phase, and as noted before, might indicate that the consolidation phase might continue, which is what happened during that time. Candlestick charts are the most popular charting method among traders, and they can provide insightful information about investor emotion and sentiment. They are also constantly analysed by traders in an effort to identify recurring patterns that can appear in any market and timeframe. The size of the draw-down and draw-up over the 15 bars following each spinning top signal were examined. The signal was classified as a bullish true positive if the price high watermark size was greater than the price low watermark. The spinning top’s delicate balance between the real body and the shadows visually encapsulates the market’s indecision.

So keep this in mind going forward, when you see spinning tops form at significant technical levels. A spinning top appears 4 -5 hours after price enters the zone – canadian forex brokers some would call this a doji, but it’s really a spinning top. By concentrating on the tops that form in and around technical levels – supply and demand zones, support and resistance levels, fibs, etc..

No, a Doji has no body with equal open and close, while a spinning top has a small body with long shadows. A stop-loss order was placed a few pips below the spinning top’s low, and a target was positioned at a level that offered double the reward versus the risk taken during this setup. When this happened, it presented the ideal conditions to enter a long position. With this strategy, the RSI indicator plays a key role in detecting whether a market is in an oversold or overbought condition. The blue line of the indicator is the RSI line, and the black-dashed horizontal lines represent levels where a market is considered oversold or overbought. Spinning tops that appear at higher timeframes such as daily, weekly, & monthly are more significant than those which appear within intraday timeframes.

Consider the overall market context and use additional technical analysis tools for confirmation before executing trades. A doji shows that the opening and closing prices are equal or almost equal, while a spinning top shows that the opening and closing prices are close but not equal. A doji is considered a stronger reversal signal than a spinning top, as it shows more balance between the buyers and sellers. Still, both patterns require confirmation from other indicators or price action before entering or exiting a trade. The spinning top candlestick reflects market indecision and suggests a potential reversal or consolidation. Traders use this pattern as a tool to identify areas of uncertainty in the market.

What Does a Spinning Top Candlestick Tell You?

Traders interpret it as a potential reversal signal, reflecting a possible change in the prevailing trend. The timeframe plays a significant role in the reliability of the spinning top candlestick pattern. Patterns identified on higher timeframes (e.g., daily or weekly charts) tend to carry more weight and offer more reliable signals compared to those on lower timeframes (e.g., 5-minute or 15-minute charts). Higher timeframe spinning tops indicate more substantial market indecision and are more likely to precede significant trend reversals or consolidations. Confirmation from subsequent candlesticks is crucial in accurately interpreting the spinning top candlestick pattern. Traders await confirmation in the form of price action following the spinning top.