The Spinning Top Candlestick Pattern is a single candle which can indicate indecision in the market. The Spinning Top pattern consists of a small body with long upper and lower wicks. It shows that neither buyers or sellers are in control and that the market is deciding on its next move.
What is the Spinning Top Candlestick Pattern?
The Spinning Top Candlestick Pattern can be bullish or bearish. It can emerge in an uptrend or downtrend or when the market is moving sideways.
In the uptrend, the Spinning Top shows that the buyers are not eager to buy more, and a reversal is possible. Conversely, in a downtrend, the appearance of Spinning Top tells that sellers are losing interest, and there is a possibility of an upward movement of the price.
Since buyers and sellers are not willing to open the trade, the Spinning Top shows uncertainty.
Its longer upper and lower shadow represents that the bulls set the price higher, and the bears set the price lower, but neither of them is in control, and the price closes near its open position.
In both upward and downward appearances, it is the candle next to the Spinning Top you need to observe. For example, if you think that price will reverse in an uptrend, the candle next to the Spinning Top must confirm a price drop. If it doesn’t, then there may be no reversal.
The Spinning Top can occur regularly on forex charts when the price moves sideways or when it is about to move sideways.
Here’s what the Spinning Top looks on a chart.
The Spinning Top and the Doji Candlestick Pattern tells about the uncertainty in the market. While the Spinning Tops have longer upper and lower wicks, the Dojis have shorter upper and lower wicks.
How to use the Spinning Top Candlestick Pattern?
To use the Spinning Top, you need to understand its formation and overall market condition.
Many traders would wait for the confirmation and not enter the trade immediately after the emergence of the Spinning Top pattern.
As you can see in the chart above, even though there is a Bullish Spinning Top, the RSI is showing a value of 42.21. Anything below the 30 is often considered oversold and above 70 is usually considered overbought.
Even though the candle next to the Spinning Top is bearish, there is indecision between buyers and sellers. In this scenario, we may wait for the price actions and then go long or short.
Spinning Top Candlestick Pattern trading strategy
As the Spinning Top Candlestick Pattern describes hesitance, we need to locate the pattern on longer timeframes for our trading strategies to help fitler out some of the market noise.
After finding the pattern on longer timeframes, we can select shorter timeframes for entry points.
As mentioned earlier, the Spinning Top can appear in an uptrend or downtrend, so it provides both buying and selling forex trading signals.
Spinning Top buy strategy
- The Spinning Top must appear in a downtrend.
- Wait for the price bar to go bullish.
- Place a stop-loss near recent low from the Spinning Top.
- Exit the trade at the highs.
Spinning Top sell strategy
- Look for the Spinning Top in an uptrend.
- Wait for the price bar to go bearish.
- Place a stop-loss near recent high from the Spinning Top.
- Exit the trade at the lows.
Spinning Top Candlestick Pattern Conclusion:
The Spinning Top Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. The Spinning Top defines neutrality between buyers and sellers.
I would prefer to use the majority of candlestick patterns such as the Spinning Top Candlestick Pattern on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels, candlestick pattern has been formed or a particular indicator value has been reached.
The Spinning Top Candlestick Pattern is just one method of market analysis amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.
Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.
The methods of implementing the Spinning Top Candlestick Pattern into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.
Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.
If you would like to practice trading with the Spinning Top Candlestick Pattern, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.