The Spinning Top Candlestick Pattern

In the world of technical analysis, candlestick patterns have long been relied upon by traders to uncover potential market trends and reversals. With its distinct appearance and message of market indecision, understanding the spinning top candle pattern can be helpful for traders seeking to make informed decisions. Understanding candlestick patterns and technical indicators, are essential for traders looking to gain insights into market sentiment and make informed trading decisions. Among the many popular candlestick formations, the spinning top pattern stands out for its unique characteristics and potential to show you the upcoming market direction. The bullish spinning top works by indicating a possible reversal of the bearish trend and the beginning of a bullish trend.

Can a spinning top candlestick pattern occur in both uptrends and downtrends?

1. A Bearish Spinning top is a candlestick formation that occurs when buyers and sellers balance each other out.
2. Because of this relatively small change in market direction, this candlestick is known as a continuation pattern.
3. Traders can use this signal to anticipate a reversal, preparing to enter or exit trades accordingly.
4. It is formed by two candles, the second candlestick engulfing the first candlestick.
5. RSI movement is calculated based on the price changes over the last period (usually 14 days) divided by the number of periods to attain the average.
6. It indicates market indecision, suggesting a balance between buyers and sellers without a clear dominant force.

An exponential moving average is combined with various other indicators like MACD, RSI, trend, etc, to confirm the trend before taking any position. 12 and 26 exponential moving averages are the most commonly used parameters for the EMA. The working of this depends on the prices which are trending above the moving averages. This generates a bullish signal, and when the price goes below the moving averages, it generates a selling signal.

Welcome to Alchemy Markets

Spinning Tops frequently appear in charts but are not very reliable on their own. They should be used in combination with other forms of technical analysis like support and resistance. So when spotting a Spinning Top candlestick pattern, look for a single candlestick with a short body between two long shadows. A Spinning Top is a Japanese candlestick with a small real body and long upper and lower shadows. Spinning tops within ranges typically help confirm the range and the market’s indecision.

1. The only difference between the two is that the Doji pattern opens and closes at the same point.
2. This signifies a peak or slowdown of price movement and is a sign of an impending market downturn.
3. The bullish spinning top indicates a possible reversal of the bearish trend and the beginning of a bullish trend.
4. It happens when a small bearish candle is followed by a larger bullish candle that engulfs the previous candle completely.
5. Once price breaks out (a close above the top or below the bottomof the spinning top) it does not trend far before reversing.
6. When analyzed with the subsequent candle, it can be effectively used in trending markets as a reversal or continuation tool.
7. Bearish means that the market, asset, or financial instrument is going to experience a downward fall.

The formation of a spinning top candlestick helps determine the probability of a price reversal especially if it happens after a price decline. Because of the small variation in the market trend, the candlestick is referred to as a continuation pattern. Assessing the reward potential of a spinning top trade is also difficult since the candlestick pattern do not provide a price target or exit plan. Traders should use other candlestick patterns, strategies, or indicators to find a profitable exit. Spinning top candlesticks are characterized by compact bodies and long upper and lower shadows, resembling a child’s toy top. These formations occur when bulls and bears engage in a tug-of-war, with neither side gaining a significant advantage during a trading period.

Here is a chart, which shows the downtrend followed by a set of spinning tops. What do you think would have transpired during the day that leads to creating a spinning top? On its face, the spinning top looks like a humble candle with a small real body, but in reality, there were a few dramatic events that took place during the day.

So, if you spot one on a chart, it’s likely just a breather in a broader continuation. We will look to short a spinning top candle failed breakout at an important swing high or resistance level, within the context of an overall downtrend. The price attempts to breakdown below the swing low, but forms a Spinning Top candlestick instead. In this strategy as well, we’re looking at things within the context of the prevailing trend and will take trades only in the direction of the trend. In this strategy, we will incorporate the Spinning Top candlestick, into the classical flag pattern.

Does Bullish Mean Up Trend?

The bullish patterns are best used with a technical indicator like RSI, MACD, Bollinger bands, etc. The third variation shows two consecutive bullish-colored spinning top pattern. But within the session, the buyers and the sellers both had the upper hand at one point, which shown by the long upper and lower shadows. The third spinning top is exceptionally large compared with the candles around it. This ended up being a reversal candle, given that the price proceeded lower.

The Bearish Reversal candlestick patterns are single or multiple candlestick patterns. Bearish Reversal candlestick patterns indicate that the ongoing trend is going to reverse to a downtrend. It is important to the traders that they are cautious about their long positions when the bearish reversal candlestick patterns are formed.

The first candle is represented as a small green body that is engulfed by a subsequent long red candle. This signifies a peak or slowdown of price movement and is a sign of an impending market downturn. The trend is likely to be more significant depending on how low the second candle can go. Bearish Spinning top candlestick pattern shows uncertainties around an underlying asset.

It is represented as a short candle sandwiched between a long green candle and a large red candlestick. It indicates the reversal of an uptrend and is particularly strong when the third candlestick erases the gains of the first candle. Traders can enter a long position the next day if a bearish candle is formed and can place a stop-loss at the high of the second candle.

Can Falsely Signal Indecision/Uncertainty During Long-Term Trends

A spinning top candlestick pattern is a type of candlestick that indicates indecision in the market. It is characterized by a small real body, where the opening and closing prices are close to each other, and long upper and lower shadows. The best way to use the bearish spinning top in technical analysis is to consider it as a sign of ambiguity and wait for the market to get onto a trade. The traders can adopt a riskier strategy during this time or sell the securities. The trader can also wait for the next candlestick pattern to form after the bearish spinning top and make a plan of action. The prices will mostly remain around the same range, and the trader can wait it out if a bearish candlestick is formed near the support price of a security.

We will look to buy a failed breakdown at an important swing low or support zone, within the context of an overall uptrend. An exit signal would be generated when you get a close below (for bull flags) or above (for bear flags) the 20 SMA. 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. The table above contains the daily reported price movement of TCS from 1st Feb 2023 to 24th Feb 2023.