Spinning Top: How to identify and trade the Candlestick

The spinning top is a candlestick that indicates indecision in the market. Discover what the pattern indicates and learn how to interpret it efficiently.

Trading is all about predicting when an asset’s value will rise and when it will fall. Technical analysis of candlestick patterns helps a trader do so.

Each and every candle in a chart plays a crucial role in trading. These candles form different patterns that provide key insights into the asset’s future price movements.

A spinning top is one such popular pattern; however, interpreting it can be difficult. But worry not; in Beirman Capital’s blog, we will discuss the spinning top candlestick pattern and how to interpret it.

What is a Spinning Top?

A spinning top is a candlestick pattern with a short real body in the middle and two long wicks on both sides of the small candle. It can be bearish and bullish depending upon the trend direction.

Spinning top occurs when both the bulls and bears are pushing the price. In simple words, it occurs when the price moves in one direction and then reverses in another direction in the same manner.

Under this, buyers push the price upward while sellers push it downward. As a result, the price reaches close to where it opened. Thus, the difference between the opening and closing price of candles is very small.

Many traders confuse spinning tops with Doji, as both suggest indecision in the market. However, both are different. Dojis have small, real bodies and upper and lower wicks. Meanwhile, the spinning top has small bodies and long upper and lower wicks.

How to Interpret Spinning Top

The interpretation of the spinning top is quite simple. However, in trading, even simple things can become complex when you don’t know the right approach. Here is how you can interpret the pattern efficiently:

Indecisions:

As we have studied above, the spinning top occurs when both buyers and sellers are pushing the price. When both parties of have the same power and are pushing with the same strength, it represents indecision and uncertainty. Thus, it indicates that the prices tend to move in the sideway direction, and it is not an ideal time to open a trade position in any of the directions.

Price Continuation:

A spinning top can even suggest a trend continuation depending on the direction in which it has occurred. The spinning top candle is neutral and does not provide potential insight into the asset price movement.

However, the next candle that formed after the spinning top can suggest trade-worthy interpretations. When the next candle after the spinning top supports the spinning top, it indicates a continuation of the trend.

Suppose a bearish spinning top candle is formed, and if the next candle supports it, the pattern may indicate a bearish continuation, and the trader can consider opening a bearish trade.

Price Reversal:

When a spinning top candle is formed, and the next candle opposes the current trend, it suggests a trend reversal. Suppose the spinning top candle formed at the end of an upward trend, and after that, a bearish candle occurred. In this case, it suggests a trend reversal from upward to downward, and traders can consider opening a short position.

Benefits of Spinning Top

The knowledge of spinning top patterns can assist you in planning and executing trades. Here is how:

Easy to Spot and Interpret:

Identifying the spinning top in the chart full of candles is quite easy. You just need to spot a small candle with little difference between open and close price, followed by two long wick candles on both sides. Even interpreting it is quite easy; you just need to monitor the other candle to identify bullish, bearish or sideways movements.

Diverse Market Applicability:

Spinning top candlestick is applicable to diverse markets to predict the rise and fall of the asset. Whether you are forex, crypto, indices, stock or commodity trader, you can make trade decisions based on it.

Key Insights to Traders:

Spinning top provides valuable insights to traders that help them in placing trades. Traders can identify support and resistance levels and entry and exit points using the tools. In addition, traders can identify the weaknesses and strengths of the trend to determine when to place a trade and when to wait.

Set Risk Management Criteria:

Placing the right stop loss and take profit level will save you from a big loss and lock the profit. Spinning top patterns can assist you in doing so. Traders can place pivot trade levels like opening, closing, stop loss, and take profit levels based on these candles.

Limitations of Spinning Top

No candlestick pattern is perfect; the same is true with spinning top. Even the pattern has some limitations, and if you are using it, you must know them. Here are its drawbacks:

Frequently Occurred:

A spinning top is a candle that frequently occurs in the trading chart. Traders can find it multiple times, even in a small time frame. Identifying when to place a trade or when to not becomes difficult. In such cases, New traders end up placing trade every time they spot the pattern and may lose money.

Not Sufficient to make a Trading Decision:

Spinning top can provide you key insights into the asset movements. However, traders cannot place their trades solely based on it. Also, identifying exact trade entries and exits is not possible with the pattern. Further, confirmation is a must; a trader needs to confirm interpretations with the other technical analysis indicators or price patterns.

Subjective:

Like any other pattern or candlestick, the spinning top is subjective. By seeing the same chart with the same market conditions, two traders can make different interpretations. Also, not every time a price moves in the same way that the pattern suggests. The effectiveness of interpretations highly depends on traders’ knowledge and experience.

Conclusion

Thousands of chart patterns and interpretations are present in the financial market. However, if you look for the perfect pattern that gives the perfect interpretations, then no single pattern or indicator matches your expectations.

The spinning top may not be the perfect candlestick pattern, but it can give you valuable trade information. Knowledge of the pattern can assist you throughout the journey, and assist in making the more accurate decisions.

FAQs

What is a spinning top?

A spinning top is a candlestick pattern with a short real body in the middle and two long wicks on both sides of the small candle.

What does a spinning top indicate?

Spinning top occurs when both the bulls and bears are pushing the price. It indicates indecisions in the market.

How do you identify a spinning top?

The spinning top has small candles in the middle and two wicks on both sides. Under this, buyers push the price upward while sellers push it downward. As a result, the price reaches close to where it opened. So traders can watch the chart and look for such a pattern.

Is the Spinning Top candle bullish or bearish?

A spinning candle can be bullish and bearish. When it appears at the top of the uptrend, it is bullish, and when it appears at the bottom of the downtrend, it is bearish.

Can you place a trade solely using a spinning top?

No, the spinning top cannot provide exact trade entry and exit points. So, placing trade solely based on it is not a good idea.