What Are Spinning Top Candlesticks and How to Trade Them?
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. However, this doesn’t come as a surprise because it’s apart of the doji candlesticks family. It has a thicker real body and could also be found in consolidation areas. Look for price break above or below candle to confirm direction. Watch our video on how to identify and trade spinning top candlesticks.
What Is a Spinning Top Candlestick Pattern & How to Identify These Candlesticks?
Spinning top candlesticks are typically small candlesticks with a bigger real body that are found on stock charts near both support and resistance levels and signal indecision. The open and close is wider than a doji.
The stock market is a tug of war between the bulls and the bears. As a result, doji candlesticks like the spinning top or gravestone doji candlesticks show that tug of war. Indecision candles form because neither side took control that day.
The indecision in the market or a stock shows the inability to make a decision about the direction it’s heading. It may not seem like much however, the spinning top candle can signal a strong reversal move is coming.
Basics of Spinning Top Candlesticks
Spinning top candlesticks have short real bodies between long upper and lower wicks or shadows. Hence the smaller the real body, the more indecision the stock is in that day.
Spinning tops can look similar to long legged doji candlesticks when reading stock trading charts. That’s why you’ll hear us constantly saying not to get bogged down in the minutia. They may look similar and they also mean the same thing.
The spinning top candlesticks are indecision candles because the upper and lower wicks didn’t affect meaningful change in price. The bulls sent the price high and the bears sent the price low.
Technicals of Spinning Top Candlesticks
Each candlestick that makes up Japanese candlesticks patterns tell a story. Spinning top candles are no different. The indecision of the spinning top candlestick is a sign of an upcoming trend reversal.
Spinning tops may not mean anything the day they form but they end up being a sign of a significant trend reversal.
When spinning top candlesticks occur at the top of a bullish trend, the bulls are losing control. Buyers are losing momentum and the shorts are coming in.
Conversely when the spinning top candlestick forms at the bottom of a bearish trend, the bears are losing control. The bulls are coming in to take the reigns. Sellers lose momentum as buyers coming to send the price up. Take our reversal patterns course.
The Importance of Technical Analysis
Spinning top candlesticks are pretty common so it works best when you use technical analysis basics to trade it. Candlesticks real bodies and wicks form support and resistance but also trade within moving average lines.
When a stock is trading in a trend, whether bullish or bearish, it can get too far extended from the moving average lines such as the simple moving average formula. A stock is always going to want to come back to it’s moving average equilibrium.
RSI (relative strength index) and MACD (moving average convergence divergence) are indicators traders use for signs of reversal. These signs help you to know if you should close out a position, buy a position or initiate a short position.
Read our post on the difference between market order and limit order to learn the best order to make the most profit.We teach how to trade spinning tops in our trade rooms. Check out our trading service to learn more.
How to Trade Spinning Top Candlesticks
- Knowing how to trade spinning top candlesticks is quite simple:
- Traders take a long position when price breaks above the high of the spinning top.
- They use a candlestick close below the low as a stop level.
- They take a short at the break of the low and use a candlestick close above high as a stop.
Patterns are another way to see what a stock will do. Candlesticks by themselves tell a story but when you group them together they form patterns.
Patterns coupled with technical indicators can give you a clear picture of what a stock will do. It’s important to remember that patterns break down all the time though.
Spinning top candlesticks can form a the the top or bottom of a pattern signaling the end of a trend. Look to see what pattern they’re apart of for confirmation of this reversal. If a spinning top candlestick forms at the end of a head and shoulders pattern, look out for a bearish reversal coming. Being able to find patterns within patterns helps you as a trader. Download our candlesticks charts free e-book.
Tops are indecision candles that signal a trend reversal. Look at the technical indicators and the pattern it’s apart of. Do you now know what are they telling you?
We hope so! When you apply these methods, you can become more successful at trading. No trader is gaining to be successful 100% of the time but studying and practicing helps to minimize loss. Take our free online trading courses if you have not registered to do so already.