It may resemble long-legged doji candlesticks when reading stock charts. That is why avoiding getting bogged down in the minutiae is important. Therefore, Fib helps pinpoint valid target price levels and subsequent trailing stops. Moreover, Fib levels are stronger when they coincide with structural price (support and resistance) levels. When the orange line is above the blue line, the market sentiment is overall bearish, while when the blue line is above the orange line, the market sentiment is generally bullish. Conversely, suppose the RSI is within the 30 to 70 range when the spinning top appears.
- Quantified Strategies ranks Mat Hold among the most successful continuation setups, with 70–75% effectiveness.
- It is a sign of indecision – indicating that while there is action going on, neither the bears nor the bulls prevailed during a certain period.
- Meanwhile, the long upper and lower shadows reflect significant volatility within the trading session.
- A spinning top chart pattern can provide a possible entry point when utilizing a momentum trading approach.
- All of the data that is available suggests that, performance-wise, both bullish and bearish spinning tops behave in the same way.
Momentum Indicator Basics for Traders
Equally important is highlighting the spinning top’s limitations, which include its weakness in isolation, a relatively poor hit rate, and similarity to other candles. Research by Liberated Stock Trader (which looked at 9,894 spinning tops on 568 years of data) indicates that the pattern is 55% accurate. This is consistent with The Predictive Power of Candlestick Patterns in Financial Markets report by the TARE, which suggests 53-54% success rates. The first notable aspect is the spinning top aligning with an upper Bollinger Band extreme. The same extreme occurred at two prior points near a key resistance, which would have been another strong hint. For example, if a spinning top forms just as price breaks out of a falling wedge, you might use its height to estimate the upside target.
How To Trade The Spinning Top Pattern
If you want to confirm the tops indicate a possible reversal or retracement, you must wait for other signals to form alongside. So we didn’t know (for sure) if buyers were still interested or whether the zone would cause a reversal. The top reconfirms that, telling us YES, buyers are still around, keep your eyes open because an entry signal could soon appear. A bullish candle formed when price first entered the zone, but that got taken south. As always, we must wait for price action signals – like pin bars, engulfs, etc – to confirm price is about to move away. Spinning tops, even though they can signal a reversal, often don’t – sometimes price simply stalls or retraces slightly after they form, hardly reversing an inch.
How to Trade the Spinning Top Candlestick Pattern?
A Doji candlestick pattern has little to no body, with the opening and closing prices either the same or very close. Its long shadows reflect market indecision, showing that the forces of buyers and sellers are roughly equal and changes are possible. Besides, you can use technical tools such as the RSI or MACD to confirm the strength of a trend. An increase in trading volumes during a breakout is a strong confirmation signal. Moreover, you can validate a Spinning Top by using reversal candlestick patterns, such as the Engulfing, Piercing Line/Dark Cloud Cover, or Hammer/Hanging Man.
- In order to determine the profit targets when trading Spinning Top candlesticks, you need to analyze the market situation.
- In such cases, traders typically wait for confirmation of the next price move.
- A Spinning Top itself is a neutral pattern, meaning it is neither bullish nor bearish.
- The spinning top candlestick is a clear visual signal of market hesitation.
A bullish candlestick pattern is green or white, indicating the price closed higher than it opened, indicating upward momentum. Bearish is a red/black signal that the closing price is lower than the opening price, indicating a downward momentum. Bullish Engulfing is a two-candle reversal pattern where a small bearish candle is fully “engulfed” by a larger bullish one.
Hammer
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. Traders should be aware of scheduled news events and consider their potential impact when interpreting spinning tops.
Bullish Kicker
It forms after a rally, with a small body near the bottom and a long upper wick — a visual sign that buyers tried to push higher but failed, leaving trapped longs above. Lastly, the Piercing Pattern occurs when a green candle opens below the prior day’s close but finishes above its midpoint — an early clue that buyers are reclaiming control. Next comes the Bullish Engulfing pattern — a small red candle followed by a large green candle that completely covers the previous one.
It’s worth noting that spinning tops can appear in range-bound settings, provided there is other notable technical confirmation (but this also applies to trends). Identifying the spinning top begins with having a strong, clear trend. So, a series of green candles with higher highs and higher lows (for uptrends) or a series of red candles with lower highs and lower lows (for downtrends). Catching a market move just as it begins, or avoiding a downturn before it accelerates, can be the difference between Periods of strong, directional trend are invariably followed by moments of rest, consolidation, and quiet deliberation.
It indicates market indecision, suggesting a balance between buyers and sellers without a clear dominant force. Traders interpret it as a potential reversal signal, reflecting a possible change in the prevailing trend. A Spinning Top itself is a neutral pattern, meaning it is neither bullish nor bearish. Thus, the context in which it appears on the price chart, additional signals from other candlestick patterns and technical indicators are more important. In the world of candlestick charts, some patterns speak loudly, while others whisper their message.
However, the pattern of the candlestick is spinning top candlestick pattern mostly found within an uptrend, a downtrend, and a sideways movement, indicating a potential reversal. The bullish trend increases the price further, while the bearish trend lowers the price until the overall price closes where it opened. Spinning top candlesticks are found on stock charts and could be a bullish or bearish reversal sign. A spinning top candlestick is a sign of indecision in the market. It has a thicker real body and can also be found in consolidation areas.
What Is The Success Rate Of The Spinning Top Candlestick Pattern?
LiberatedStockTrader’s testing found similar results, with ~62–65% effectiveness when confirmed by volume. It forms when aggressive selling dominates for several sessions, but then slows as indecision appears, and finally reverses sharply with a bullish surge. This sequence represents panic selling followed by stabilization and accumulation.
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. Spinning top candles can help identify potential trend reversals. If a spinning top candle appears after a prolonged trend, it could suggest that the trend may be about to reverse.
