Spinning Top Candlestick: A Complete Guide

One of the essential components of the Vast Japanese candlestick pattern repertoire is the Spinning Top Candlestick Pattern, which has unique characteristics.

It is most likely that these candlesticks reflect general market indecision. Nevertheless, they can be a valuable guide for trading strategies.

We've covered pretty much everything you need to know about this pattern in this guide, so even if you are a beginner, you won't need to stress.

It is important to note that before learning more about this pattern, you should know that it doesn't allow traders to enter or exit the market in the same way as other candlestick patterns.

Right through this guide, we will explain to you all about what spinning top candlestick is and how you can trade with this pattern. Let's dive into this discussion below.

What is meant by spinning top candlestick?

A spinning top has an upper and lower shadow vertically centered over a real short body in candlestick patterns.

This candlestick pattern represents indecisiveness about the asset's direction. This means buyers and sellers cannot decide on which path to take.

As buyers push prices up during a given period, and as sellers push prices down during the same period, a candlestick pattern is formed, but the closing price ends up very close to the open price.

Suppose the candle that follows the spinning top confirms the price reversal after the substantial price advance or the decline. In that case, the spinning top could eventually signal that the price is about to reverse entirely. While the closes of spinning tops can differ from the opens, they are always very close together.

What are the essential features of spinning top candlesticks?

A spinning top candlestick has both a wick and a body, just like other candlestick patterns:

• Traditionally, wicks are formed by vertical lines and bodies by horizontal lines.

• The length is likely to vary since the top shows the highest price while the bottom shows the lowest.

• The body shows the difference between closing and opening prices, so the height is likely to vary.

• In this case, a single candlestick represents uncertainty in the market. Candlestick patterns are generally characterized by a short body surrounded by longer wicks.

• Depending on its closing price, the spinning top candlestick pattern is either bullish or bearish.

• The candlestick may be in an uptrend, downtrend, or consolidating, which is generally a sign of a possible reversal.

How is a top spinning candlestick formed?

The spinning top candlestick forms when a bullish move sends a price higher than the opening price, but a bearish move takes it back down again before the market closes.

Bearish traders may lower prices below the open price, while bullish traders may raise it before closing.

Basically, after having explored upward and downward possibilities, the market settles at a price that is more or less the same as its opening price - with no significant change.

What does a spinning top tell the traders?

There was no meaningful change in price between the open and close when the spinning tops occurred. Indecision of the asset is identified through the long upper and the lower shadows.

After a price advance or decline may also indicate a possible price reversal.

A spinning top may sometimes indicate a significant shift in trends. For example, a spinning top might indicate that bull control is losing during an uptrend, which could reverse.

Furthermore, a spinning top may signal the end of bears' control of the market and the beginning of bulls' control.

Candlestick patterns like spinning tops are common in technical analysis. They should be combined with other analysis making decisions based on candlestick patterns, indicators, or different types of analysis that can make informed decisions.

How is it possible to trade the spinning top candle?

You can trade the spinning top candle patterns in a few significant ways. First, you must ensure the trading candlestick pattern to confirm the signal. Technical indicators can offer greater insight into the price trends than the spinning tops.

In this way, traders use these to confirm what they believe a spinning top is signaling.

Using a stochastic oscillator, it gets easier for you to see if the spinning top at the bottom of the downtrend is displaying the upcoming reversal or not.

A market speed and momentum indicator can help you determine price movements over a specific time frame. If the upcoming reversal is confirmed, it may be wise to buy (go long).

You can use derivatives like spread bets and contracts for difference (CFDs) whenever the spinning top candlestick pattern is spotted.

The underlying assets are not owned, but their price movements are speculated. Taking action after both bullish and bearish spinning tops allows you to trade rising as well as falling markets.

Trading the pattern of spinning top candlestick chart requires you to follow a few of the steps discussed below:

1. Log in to your IG trading account or create one

2. Enter the name of asset name into the search bar

3. Type the position size

4. On the deal ticket, choose 'buy' or 'sell.'

5. Confirm the transaction

A demo account with IG is a great place to practice spinning top chart patterns. In addition, the £10K in virtual funds will allow you to open and close positions without any risk.

How can you identify a spinning top candle?

The candlestick pattern is small and straightforward. In this pattern, the open and the closing price for any particular session are closed to one another. As a result, both sides should have almost equal shadows.

A perfect spinning top will have the following identification mark:

• The body is a bit smaller

• Shadow length should be exceeding the size of the pattern body.

• There should be more or less the same size difference between the upper and lower shadows.

• Longer shadows are considered to be more powerful indications.

• It is not important what color the candle is.

You can still use some variations of these rules to match an ideal spinning top, even though finding it is not easy. Please don't confuse it with the Doji pattern.

Trading spinning tops in an uptrend

In an uptrend, spinning tops indicate a loss of control by bulls. This fairly often happens. This candlestick pattern represents indecisiveness about the asset's direction.

A strong bullish trend implies the bulls were in complete control; a spinning top indicates indecisiveness. This means that the bears attempted to enter but were unsuccessful, at least on that specific day or timeframe.

There are two possible outcomes: bulls might take a breather and then gain steam again and push stocks higher. But, more often than not, this happens when bears gain control and push prices lower.

When it comes to reversal patterns, a spinning top usually needs multiple spinning tops, a loss of momentum, a drop in volume, etc. Therefore, reversals are rarely initiated directly by spinning tops.

You should always look for the breakout candle for entering the trade just above the spinning high top level. Place the stop loss just below the spinning top low. A trendline break and trend continuation patterns, for example, are some other confirmations that traders need.

Trading spinning top candlesticks in a downtrend

An appearance of a spinning top during a solid downward trend indicates that the bears are losing control.

A spinning top indicates indecision, as we were in a strong bearish trend. In other words, the bulls attempted to enter, but they failed -- at least on that particular day/timeframe.

The spinning top may be a brief pause by the bears before they push the markets further down. Then, bulls take control and push prices higher more often than the other possibility of the market being driven higher.

A spinning top needs a few extra confirmation signals to look at. This includes multiple spinning tops, lower volumes, or momentum losses. All these are required to work as a reversal pattern.

There are other indicators traders should look at, such as trend continuation patterns, short-term trendline breaks, etc.

High volume spinning top candle

Combined with the volume information, spinning top candle patterns are best for trading. When a spinning top candlestick pattern occurs, a high volume is an average as the market is indecisive.

High volume spinning tops indicate that the consolidation phase will continue, so stay out of trading or stick to current trade if you are already in one.

If a spinning top is accompanied by low volume, one should watch for a candle break on the bottom or top.

The frequency of spinning top candlestick patterns

The frequency of appearance of candlestick charts has been reported to be very high. They are available in different time frames. The most frequent candle is the spinning top, like ants at a picnic. They are everywhere, and they don't mean much when they appear.

Example of a spinning top candlestick

Bulls and bears with small real bodies are indecisive and engaged in a fight. Both bulls and bears couldn't establish control and significantly move the market in their favor.

What occurs on any given day is the psychology behind the pattern. As soon as the price opens, bulls and bears begin battling.

In the case of a slight advantage for bears, a red candle (or black candle) will be printed, while in the case of a slight advantage for bulls, a green candle (or white candle) will be published.

When it occurs after an extended uptrend or downtrend, a spinning top candlestick may signal a reversal. Still, it must be confirmed by other reversal signals before entering the trade.

An extended uptrend capped by a red spinning top or an extended downward trend capped by a green spinning top has a greater chance of reversing.

The continuation of an uptrend or downtrend can be indicated by a break above or below a Spinning top.

An important spinning top is formed at pivot points, levels of support or resistance, or at Fibonacci levels.

The difference between a spinning top & a Doji

Doji and Spinning Top have longer wicks. Dojis and spinning tops have the main difference that the real body of a spinning top is small, non-zero, whereas the real body of a Doji is almost zero.

A Doji candle, depending on the length of the shadow, looks like a cross or plus sign. In addition, Dojis features a highly narrow body, indicating that the open and close prices are identical or comparable.

For this candle, the upper and the lower shadows are determined by, the higher and lower for that day.

Depending upon where it appears on the chart, a Doji may take the form of a dragonfly, a gravestone, a star, etc. Each type of Doji has its trading significance.

Unlike spinning tops, spinning tops are a bit larger, with the opening and closing close to one another, rather than identical.

Typically, a spinning top has large shadows or wicks on either side, indicating a wide variance in highs and lows. As well as signaling weakness in the current trend, spinning tops may also indicate a reversal.

Observe the rest of the indicators, such as Bollinger Bands, ATR bands, momentum reversal, or the continuation patterns. This is required if the doji or the spinning top is spotted.

Spinning top vs. hammer candlestick pattern

The spinning top and Hammer both have wicks with non-zero and small bodies. However, hammers do not have wicks on the top like spinning tops, while spinning tops have wicks on both sides.

Spinning tops typically happen at the end of a downtrend and thus indicate a bullish reversal. On the other hand, Hammers indicates indecision.

Hammers are the bullish patterns, while spinning tops are the neutral ones.

Spinning top vs. shooting star trade candlestick pattern

The shooting star and the spinning top have small bodies and longer trade wicks. Spinning tops differ from shooting stars in that they have wicks on both sides of the top while shooting stars do not.

Spinning top signifies indecision in the market at the end of an uptrend, while Shooting star occurs at the end.

Spinner tops do not have a bullish or bearish bias, while shooting stars are bearish patterns.

Is it possible to use the spinning top candlestick patterns?

Candlestick patterns, including the spinning top and the spinning bottom, can reverse. These patterns hence appear towards the end of a trend. As a result, you need to discard any spinning tops or spinning bottoms within a movement.

This can be accomplished by observing how the price behaves the following day. You can assume it wasn't a spinning top or bottom if you see that the previous trend continues.

A spinning top candlestick pattern and a spinning bottom candlestick pattern form at the top or even at the bottom of the candlestick chart. Take note of the last trend first. Neither the spinning top nor the spinning bottom candlestick pattern can develop unless there is a strong trend in place.

The next step is to plot the trading support and resistance levels once you have just found the pattern that has been fully validated by comparing it with the previous trend.

You should only test the support and resistance levels once they are fresh. When a support or resistance level is tested repeatedly, its chances of holding price when it is tested again are reduced.

The following candlestick pattern should form after you wait for the first. If you notice the appearance of a spinning top pattern, this should yet indicate the bearish sentiment. But if you see a spinning bottom pattern, this will indicate the bullish sentiment.

Limitations of spinning top pattern

The spinning top candlestick pattern is based on three main limitations.

1. Since the patterns show up too frequently, their significance in indicating a reversal or something distinct is low most of the time. Additionally, they are expected when the market moves sideways, which can be confusing.

2. Trading the spinning tops involves the placement of stop losses at the higher or lower level of the candle. Unfortunately, the stop loss is also huge in light of the large shadows, complicating determining the optimal risk to reward ratio.

3. The spinning top candlestick will never indicate within the possible price target to exit the trade volume. This requires other methods to determine the reward potential.

Bottom line

Candlesticks with the spinning top patterns generally form when the price of any asset opens and closes at any similar level. Thus they indicate a certain period of rest and consolidation.

Bullish spinning top and bearish spinning top are two significant variations of the spinning top pattern. When markets have explored upward, and downward options, spinning top candlesticks form when they close roughly at their opening price.

Spread bets or the CFDs are two primary ways to trade when you notice the spinning top candlestick pattern. Since you do not own the underlying asset, you can go long or short with the derivatives.