Spinning Top Candlestick Pattern

The spinning top candlestick shows market indecision, where bulls raise the price, but bears pull it back down, leading to little price change.
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Spinning Top Candlestick Pattern
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3 mins read
12-November-2024

As a trader in the stock market, having a working understanding of trends and charts can be invaluable. When it comes to stock market analysis, there are three major types of charts: bar charts, line charts, and candlestick charts. Each has its own significance and utility.

The spinning top candlestick pattern signals indecision in the market, with buyers and sellers locked in a stalemate. This pattern, characterised by a small real body and long upper and lower shadows, suggests a battle between opposing forces, with neither side gaining a decisive advantage. This period of uncertainty can precede a significant price move in either direction, making it a crucial pattern for traders to recognise.

What is the spinning top candlestick pattern?

The spinning top candlestick pattern is a classic indicator of market indecision. It occurs when buyers and sellers engage in a tug-of-war, with neither side gaining a clear advantage. The candle's small body suggests that the opening and closing prices are close, while the long upper and lower shadows indicate significant price fluctuations during the period. This pattern, while common, often precedes significant price movements. Traders should use it in conjunction with other technical indicators to identify potential entry and exit points, as it provides valuable insights into market sentiment and underlying trends.

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What does the spinning top candle indicate

Despite reaching a high and a low price point during the trading hours, the spinning top candlestick pattern indicates that ultimately, neither the buyers nor the sellers could gain benefit over the other. If the spinning top pattern forms after a strong price increase or decline, it is a potential marker of share price reversal. The chances for the reversal are bolstered if the subsequent candlestick also confirms the same trend.

Example of a Spinning Top Candlestick

For example, suppose the next candle after a spinning top candlestick that has emerged after a steady price decline shows an increase. It is indicative of a price trend reversal towards the positive. This means that if the price in the market has been declining recently and a spinning top candlestick pattern emerges, that is enough to wait and see what happens the next day. Let us assume that the next day’s candle is in the bullish engulfing pattern then it is a strong indicator for traders that there may be a price reversal in the market.

Remember, the closing price of the stock may be more or less than the opening price, but what is for certain is that in the spinning top candlestick pattern, the two values would always be close to each other.

How traders use a spinning top candlestick pattern

There are several strategies for trading the spinning top candlestick pattern. The first step is to confirm the signal. Many traders use additional technical indicators to corroborate the information provided by the spinning top, as these can offer deeper insights into price trends.

If a spinning top appears at the bottom of a downtrend, it may signal an impending reversal. To confirm this, traders often use the stochastic oscillator. This indicator can help gauge the momentum and speed of price movements over a specific timeframe. If the reversal is confirmed, a long position can be considered.

Derivatives like spread bets or contracts for difference (CFDs) are popular tools for trading this pattern. These financial instruments allow traders to analyse the price movements without owning the underlying asset. This means you can profit from both rising and falling markets, making it possible to trade both bullish and bearish spinning top patterns.

Market indecision

A spinning top pattern is always an indicator of indecision in the market for the stock or asset. The small body signifies that the opening and closing price values were very close with no significant change. As the bullish buying side pushes the prices higher during the trading day, the bearish sellers pull the price down. Eventually, the stock price does not move much and closes near where it opened. A spinning top candle can mean two things for the upcoming days-

  • More neutral movement in the prices if the spinning tops appear in a given range
  • Price reversal, if the spinning top emerges after an uptrend or a downtrend

Because of these possibilities, the candlestick that follows the spinning top also gains more value as it clears up the spinning top trend signs. This also necessitates a more comprehensive technical analysis of the market conditions to gain important insights as a trader in the market. 

Difference between a spinning Top and a Doji

While studying candlestick chart patterns, another common pattern that emerges is the doji pattern. If you understand the spinning top candle by now, you can also understand doji. The doji pattern is like the spinning top but has an even smaller candle body and small wicks.

In contrast, the spinning top has a slightly bigger body and bigger wicks. As evident, both patterns share a few similarities. Firstly, both patterns reflect a general indecision in the market. Furthermore, spinning top candlestick and doji can signify a price reversal in the stock market. However, it is important to note here that both also rely on further clarification through the surrounding candles.

For instance, if a spinning top or doji pattern appears after a declining trend in prices, then the traders will be on the lookout for the next candle. If the next candle indicates a significant increase in price, then the spinning top candle has been a sign of price reversal. In this specific instance, if the candle before the spinning top conveys a significant decline, in line with the downward trend, then this overall pattern of three candles also forms the morning star candlestick pattern.

Advantages and disadvantages of spinning top candlestick pattern

Advantages

Disadvantages

This pattern can help the trader work within the minimum suggested investment timeframe.

Since these candlesticks are very common, many of them could be inconsequential.

The spinning top is where traders can move prices higher and lower during the trading process.

The pattern often occurs when the price is already moving sideways or a movement is about to begin.

When the spinning top pattern occurs after a prolonged uptrend or downtrend, it may suggest that the current trend is losing momentum and a reversal could be imminent.

The pattern requires confirmation, but even with confirmation, the price is not guaranteed to continue in the new direction.

This pattern helps the trader identify potential pause points in an ongoing trend, allowing for better timing of entry and exit points.

 

Trading around the spinning top can be challenging due to the potential for large price fluctuations from the high to the low of the candle.

 

This pattern can be used in different timeframes, making it applicable for both long-term and short-term strategies.

 

Analysing the reward potential of this pattern is difficult as the candlestick pattern does not offer a price target or an exit strategy.

 

Conclusion

Having a robust grasp of the spinning top candlestick pattern holds critical importance for traders operating in the stock market. This particular pattern, characterised by a small central candle body surrounded by long wicks, signifies uncertainty in the market and potential reversals in the prices. Depending on whether it appears to follow an upward trend, a downward trend, or within a trading range, the spinning top suggests that traders should prepare for either sideways price movement or a price reversal trend. The volatility in the market could be due to various reasons, like major changes in a company pertaining to investments, mergers or divestitures or even when a company posts its results with changes in its gross and net profits.

However, accurately interpreting this pattern necessitates taking into consideration the subsequent candlestick for further clarity. Though similar to the doji pattern, the spinning top sets itself apart with a slightly larger body and wicks. Still, both highlight market indecision and the possibility of price reversals. What is crucial as a trader is to integrate the knowledge of the spinning top candlestick pattern with other markers to precisely identify market trends and make well-informed decisions.

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Frequently asked questions

What is the meaning of the spinning top candle?

The spinning top candlestick pattern signals market indecision, as bulls and bears battle for control without a clear winner. Characterised by a small body and long upper and lower shadows, it reflects a period of equilibrium where neither side gains a decisive advantage. This uncertainty often precedes significant price movements, making it a crucial pattern for traders to recognise.

Why does the spinning top pattern show indecision?

The spinning top candlestick pattern is a classic indicator of market indecision. It occurs when bulls and bears are locked in a stalemate, with neither side gaining a clear advantage. Characterized by a small body and long upper and lower shadows, it reflects a period of equilibrium where price action is relatively balanced. While a spinning top often signals a pause in the current trend, it can also be a precursor to a potential reversal if confirmed by subsequent price action.

How do you find the spinning top candlestick pattern?

A Spinning Top candlestick pattern forms when the price experiences a significant reversal, with both bulls and bears exerting strong influence. Despite the initial momentum, neither side manages to gain a decisive advantage, resulting in a closing price near the opening price. This neutral pattern suggests a balance of power between buyers and sellers.

However, when a Spinning Top appears within a well-established uptrend or downtrend, it signals a potential shift in market dynamics. The emergence of the opposing force suggests a weakening of the prevailing trend and a potential reversal. This uncertainty highlights the importance of careful analysis and consideration of additional technical indicators to assess the market's future direction.

What does a spinning top candle indicate?

The spinning top candlestick pattern is a classic indicator of market indecision. It occurs when buyers and sellers are locked in a tug-of-war, with neither side gaining a clear advantage. Characterised by a small body and long upper and lower shadows, it reflects a period of equilibrium where price action is relatively balanced. While a spinning top often signals a pause in the current trend, it can also be a precursor to a potential reversal, especially when confirmed by subsequent price action.

What does a spinning top symbolise?

A spinning top candlestick pattern signifies a period of indecision and uncertainty in the market, where buyers and sellers are evenly matched. Neither side has a clear advantage, leading to a balanced price action.

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