Spinning Tops: Candlestick Patterns Explained
This tool on the ATAS platform uses historical data to recreate real-time trading conditions. It enables traders to sharpen their skills in a completely realistic environment without any financial risks. For one, in a bullish spinning top, the price opened sharply higher and provided signals that bulls are doing well. However, as this happens, sellers come back in and push the price lower close to the opening price. A bullish Spinning Top is typically green or white, indicating that the closing price is higher than the opening one.
- Traders, armed with this knowledge, can contemplate short positions, particularly if other technical tools validate the bearish perspective.
- As such, you need to use this candle pattern as another confluence trading tool to predict a trend reversal and combine it with other technical indicators in order to confirm the reversal.
- In the chart below, the spinning top pattern occurs at the end of an uptrend after the second double top.
- In the cryptocurrency market, Bitcoin was experiencing a steady uptrend in mid-2023.
- In such cases, the pattern may reflect the market’s reaction to the news, indicating a temporary pause or a reassessment of the prevailing trend.
A simple way to tell them apart is by the body – to qualify as a doji candle, the body can represent up to 5% of the candle’s range – any more and it is a spinning top. All of the data that is available suggests that, performance-wise, both bullish and bearish spinning tops behave in the same way. Even at a more abstract level, both of these variations suggest the same thing – indecision. However, context is key here – looking at the previous candles, it is clear that the index was in a sustained downtrend.
However, validation happens when the next candle has a large bullish body with little to no shadows. To give you even more data so that you can put this into context, a spinning top (at least according to Bulkowski) leads to a reversal 50% of the time. Alternatively, if a spinning top occurs during a period of sideways trading, it’s simply a sign of more indecision – and a hint that one should move on to greener pastures. It is important to distinguish between the two to make informed trading decisions.
What is the best time frame to use for the spinning top candlestick pattern?
In such a scenario, a trader will enter a long position with a stop-loss order at the lowest level of the spinning top candle or at the 78.6% level. Everything that you need to know about the Spinning Top candlestick pattern is here. For traders who understand that every candle tells a story, the spinning top is a reminder that sometimes the market simply takes a breath before deciding which way to run.
How Does a Spinning Top Candlestick Work?
Market news and economic events can significantly influence the formation of spinning tops. Unexpected news releases or economic data can create volatility and uncertainty, leading to the price fluctuations that characterize spinning tops. In such cases, the pattern may reflect the market’s reaction to the news, indicating a temporary pause or a reassessment of the prevailing trend.
How to Trade the Pin Bar Candlestick Pattern
By early afternoon, large institutional sellers begin offloading their holdings, possibly taking profits or reacting to other macroeconomic factors. This selling pressure counters the earlier bullish sentiment, pushing Bitcoin’s price down to a low of $29,500. To completely validate a trend reversal, we also added Fibonacci levels from the highest to the lowest price levels of the prior trend. In the USD/CHF chart below, we can see how the bullish spinning bottom pattern is formed at the end of a downward trend.
- While it signals market indecision, it doesn’t provide clear directional cues.
- It appears so frequently that if you want to actually use it, you must be able to understand the context within which it is appearing.
- This selling pressure counters the earlier bullish sentiment, pushing Bitcoin’s price down to a low of $29,500.
- Always wait for confirmation from the next few candles, especially in volatile conditions.
- Let’s take a closer look at the types of the spinning top patterns and the related strategies to use in your trading routine.
In that case, it would be wise to abandon short positions and also put spinning top candle contracts that you might have previously purchased. A chart pattern illustrating the bottom of a bullish spinning top after a downtrend. The long wicks indicate that the price has moved significantly up and down before settling close to the opening price. The length of the wicks is a sign of volatility in the market – both the bears and the bulls attempted to have their way, but we ended up very close to where we started.
To become a successful trader, understanding candlesticks is a great place to start. But you should also learn how candlestick patterns and chart patterns work. Plus, you need to be able to recognize cycles, trends, and price levels.
By the end of the day, the enthusiasm has abated – and the stock closes very near to its opening price. That moment of indecision can be a sign of reversal – an upcoming change in a thus-far prevailing trend. With options experiencing high volume and liquidity, there’s money to be made in the market – and identifying a trend reversal is one of the most surefire ways to do just that. That said, due to its ease of identification, it also simplifies planning around it. Second, like other technical indicators (notably, the RSI), you can also use the MACD to help you pinpoint specific points of market sentiment shifts.