Spinning Top Candlestick: Meaning, Formation, and Tips
So, a series of green candles with higher highs and higher lows (for uptrends) or a series of red candles with lower highs and lower lows (for downtrends). A large candle that closes in the opposite direction hints at a potential turning point. However, if it closes in the previous direction, the spinning top would have merely represented a pause. We’ll also break down how accurate the pattern is, when it works best, and how traders build it into complete systems. In volatile markets, use the Average True Range (ATR) to adjust your stop. For example, applying a 1.5× ATR multiplier can help you stay in the trade longer without getting stopped out prematurely, while still managing your risk effectively.
- The small real body shows that buying and selling pressure has evened out by the end of a period.
- Traders interpret this pattern as a sign that momentum is weakening and that the current direction may be about to pause, reverse, or consolidate.
- In April 2023, the EUR/USD forex pair was in a prolonged downtrend.
- During this down move on Usd/Jpy, three spinning tops formed, followed by a sharp decline.
Real-World Examples of the Spinning Top Candlestick Pattern
Tamta’s writing is both professional and relatable, ensuring her readers gain valuable insight and knowledge. This pattern helps the trader identify possible pause points in an ongoing trend, which allows for better timing of entry and exit points. The pattern requires confirmation, but even with confirmation, the price is not certain to continue in the new direction. This pattern will help the trader work in the minimum suggested investment time.
He has experience in technical analysis of financial markets, focusing on price action and fundamental analysis. After many years in the financial markets, he now prefers to share his knowledge with future traders and explain this excellent business to them. Near key support/resistance levels, it may suggest a potential reversal, especially if followed by confirmation.
Utilizing Technical Indicators for Confirmation
A downtrend may begin after a bearish Spinning Top, especially if a bearish candlestick forms afterward. However, you should always confirm the signal with other indicators and patterns. When trading a bullish Spinning Top candlestick, you should wait for confirmation. If a bullish candlestick appears after the pattern, consider a long trade with a stop-loss set below the low of the Spinning Top. When trading a Spinning Top, it is important to confirm the signal with a subsequent candlestick.
- This pattern features a small body positioned at the center of the candlestick, as well as long upper and lower shadows.
- For long trades, look for a bullish candle that closes above the spinning top’s high – this indicates buyers are gaining control.
- Before we wind up, it is important to note that the spinning top Pattern is a neutral pattern, it does not always guarantee a bullish or a bearish reversal.
- To effectively incorporate the spinning top pattern into a trading strategy, it is essential to consider several factors.
Following this, we might only want to take a trade if the market is overbought or oversold, depending on if you’re going short or long. For example, in quite a lot of our strategies we use the day of the week to ensure that we don’t take trades on those days where the strategy hasn’t worked well historically. Here is a chart showing an uptrend, and after spinning tops, the stock rallied. Here is another chart which shows the continuation of a downtrend after the occurrence of spinning spinning top candlestick tops. Here is a chart, which shows the downtrend followed by a set of spinning tops.