Stock chart showing Apple’s performance and several candlestick patterns. A bullish spinning top, also called a white spinning top candle occurs when the closing price is higher than the opening price. Depending on the platform that you’re using, bullish spinning tops can be printed as green or white. Candlesticks with a long upper wick, long lower wick, and small real body are called spinning tops and typically represents indecision in the market. Candlesticks are a way of communicating information about how price is moving.
The second important point when reading a spinning top candle chart pattern is position. To be more precise, the position of the spinning top in relation to other candles – what comes before a spinning top and after it. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. A spinning top formed with high volume can carry more weight, indicating that many participants were involved in the indecision.
Not all candlesticks shapes earn names—so you should probably check out the ones that do. Just keep in mind that it’s not necessarily about memorizing all of the ins-and-outs of each. It’s more about ingraining the principles of price action into your brain. That said, due to its ease of identification, it also simplifies planning around it.
Whether novice or experienced, mastering this pattern equips traders to navigate the financial markets with confidence and seize lucrative opportunities. Trading on spinning tops presents challenges due to their ambiguous nature. Determining stop loss and take profit levels can be difficult, as these patterns offer limited guidance. By examining these examples, traders can visually distinguish between the two patterns and understand their implications in real-world scenarios. The primary visual difference lies in the presence of a small real body in spinning tops versus the almost nonexistent real body in dojis. The spinning top’s delicate balance between the real body and the shadows visually encapsulates the market’s indecision.
- Both the candles should have matching highs or upper shadows at the same level.
- There is no difference in how both are used, as they can be used effectively in both uptrends and downtrends, except, of course, during non-trending periods.
- That said, the reversal is significantly dependent on the confirmation, which the next candle in the chart provides.
- The long upper and lower wick displays a higher level of volatility that occurred during the trading period, with neither bulls nor bears dominating.
- Because of the small variation in the market trend, the candlestick is referred to as a continuation pattern.
Traders seek confirmation from subsequent patterns or indicators before acting on such signals. However, traders should exercise caution and seek confirmation from subsequent candlestick patterns to validate the anticipated price reversal. Following an uptrend or downtrend, a single spinning top alone may not sufficiently confirm a reversal. A neutral candlestick pattern, such as a spinning top, illustrate the current indecisive market sentiment.
Can Falsely Signal Indecision/Uncertainty During Long-Term Trends
Footprint analysis of the July 29 candle offered valuable insight into the most likely direction of the market. At that point (4), bulls got trapped after believing spinning top candle they had successfully broken through the $74-77 resistance zone. This mistake was confirmed by the strong seller activity (5) the next day, which should have given cluster chart traders a solid reason to open short positions. The pattern is a variation of the traditional Doji, where the open and close are almost equal.
What are candlestick charts?
So, there are a lot more things to learn about technical analysis, which we have covered in different modules of ELM School. Be sure to read them all to gather the necessary knowledge and skill about technical analysis to become a successful trader. The confirmation of the reversal signal is given by the bearish candle on the next session after the formation of Dark Cloud Cover candlestick pattern. However as mentioned earlier, a trader must keep in mind other technical parameters to initiate the trade. In the current uptrend, a bullish engulfing candlestick is formed as the market is expected to move higher.
Its small body with long shadows reflects a balance of power between buyers and sellers, showing that neither side has a clear edge. This pattern suggests that a trend reversal or consolidation may be on the horizon. Relying on a Spinning Top as the sole signal to enter a trade is highly risky. Traders should watch out for false breakouts and sudden reversals, which can occur due to the low volatility often present during the pattern’s formation. The spinning top candlestick pattern is an indication such market indecisions.
How to Trade the Dark Cloud Cover Chart Pattern
Whereas a period of low volatility is when the market just pauses without making any meaningful moves. You already know that a market will cycle between periods of low volatility and high volatility. The table above contains the daily reported price movement of TCS from 1st Feb 2023 to 24th Feb 2023.
What is a Tweezer Top and Tweezer Bottom Candlestick Pattern?
In either case, when a spinning top or a doji appears during a trend, it is a sign of possible reversal. When it occurs during sideways trading, it is usually of little significance. Sure enough, in short order we see a reversal and a sizable increase in price – as well as the makings of a new, longer-term uptrend. These easily-spottable configurations of shapes can go a long way in pointing us in the right direction.
Traders might find it challenging to assess the exact proportions of the candle’s shadows and body when identifying the pattern. The next day, there was a sharp drop caused by disappointing quarterly reports. This impacted major tech companies like Alphabet (GOOG) and Tesla (TSLA), whose Q2 results put pressure on AAPL’s stock price. But within the session, the buyers and the sellers both had the upper hand at one point, which shown by the long upper and lower shadows.
However, its interpretation can be influenced by the prevailing market trend. When a bullish spinning top forms after a pronounced downtrend, it can be perceived as a potential indicator of an upward shift. A downtrend may begin after a bearish Spinning Top, especially if a bearish candlestick forms afterward. However, you should always confirm the signal with other indicators and patterns. A Spinning Top has a short but prominent body with long upper and lower shadows. This pattern indicates the confrontation between buyers and sellers.
Conversely, low volume may suggest weak conviction behind the price action. Candles like the doji, hammer, or inverted hammer may resemble spinning tops but carry different meanings. Carefully check the body size and shadow symmetry before labeling the candle.
Spinning Top vs. Doji Candles
- Both the candles should have matching lows or lower shadows at the same level.
- The idea behind indecision manifested in the market throughout the formation of the spinning top is that buyers and sellers move prices higher and lower during the trading process.
- No, a Doji has no body with equal open and close, while a spinning top has a small body with long shadows.
- Fibonacci retracement levels (like 38.2%, 50%, 61.8%) often act as natural support or resistance.
- We teach day trading stocks, options or futures, as well as swing trading.
- Conversely, if a spinning top forms after a price drop towards a support level, it may indicate an upcoming upward reversal.
In this example, we can see that there is no clear trend, and the price is bouncing back and forth within a set range. In this case, the spinning top does not serve any meaningful use, as market sentiment is already unclear and moving in a sideways manner. By waiting for a clear trend to emerge, investors can avoid buying or selling when the market is indecisive, reducing the risk of losses. 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.
