The Spinning Top candlestick pattern forms part of the vast Japanese candlestick repertoire with its own distinct features. Often associated with indecision in the market, Spinning Top candles can provide valuable supporting information to a trading strategy. The main talking points of this article are:
- What is the Spinning Top candlestick pattern?
- How is the Spinning candlestick formed?
- How to trade the Spinning Top candle
- Learn more about trading with candlesticks
What is the Spinning Top candlestick pattern?
The Spinning Top pattern consists of a single candlestick that indicates market uncertainty. This candlestick is characterized by a small body with long wicks of roughly equal length on either side. The Spinning Top can close as either bullish or bearish. This pattern is typically found within an uptrend, downtrend, or during a consolidation (sideways movement), and it often signals potential reversals.
How is the Spinning Top candlestick formed?
The price movement within a Spinning Top candle reflects a tug-of-war between buyers and sellers, resulting in the opening and closing prices being very close to each other. One of the advantages of using the Spinning Top pattern in a trading strategy is that it’s easily identifiable with minimal time commitment.
The indecision shown in the market during the formation of a Spinning Top is straightforward: while the candle was forming, traders pushed prices both higher and lower throughout the chart period. This led to the closing price reverting back to, or very close to, the opening price.
Although the Spinning Top shares a similar basic structure and logic with the Doji, it features a wider candle body, indicating more significant price movement during the candle’s period.
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How to Trade the Spinning Top Candle
Trading with the Spinning Top candle requires understanding both its formation and its position relative to the overall market trend. The example below illustrates the process of identifying, confirming, and executing a practical forex trade using the Spinning Top.
EUR/NZD Spinning Top Candlestick
In the EUR/NZD chart above, a bearish Spinning Top candle appears at the top of an uptrend, as highlighted by the gold trend line. The evident indecision between buyers and sellers leads to a reversal in the trend direction.
Traders should avoid entering a trade immediately after the Spinning Top forms. Instead, it’s prudent to delay the trade and wait for confirmation. Confirmation can come from technical indicators, fundamental factors, or oscillators, such as a stochastic oscillator. In this case, the stochastic re-confirms a short entry, as indicated by the blue circle.
The most common method used by technical traders to confirm a trend reversal is to wait for the formation of the succeeding candle. In the example above, the succeeding candle should close lower than the wick of the Spinning Top. Without this confirmation, the signal of a trend reversal may not be reliable, and uncertainty could persist in the market.
Key takeaways for trading the Spinning Top candlestick pattern:
• Locate a candle with a short body and long wicks on both sides
• Identify the market trend using trend lines or technical indicators
• Wait for confirmation before entering a trade
• If confirmed, place the trade in the desired direction
In conclusion, the Spinning Top candle represents market indecision between buyers and sellers, which could indicate potential price reversals. It’s crucial to recognize the Spinning Top’s position within the market—whether within a trend or at key levels of support and resistance. The Spinning Top candlestick pattern is most effective when it appears at these specific points.
