Candlestick charts are popular among traders because they provide a lot of information about price movements. Spinning top candle are one type of candlestick pattern that traders can use to identify potential trend reversals.
What Is a Spinning Top Candle?
It is a type of candlestick pattern that can indicate indecision in the market. It occurs when the opening and closing prices are close to each other, but there was a significant price movement during the candle’s timeframe. In other words, the candle has a small real body and long upper and lower wicks. The spinning candle can indicate that the market is undecided and neither the bulls nor the bears have control.
What Does A Spinning Top Candlestick Pattern Look Like?
A spinning top candlestick pattern has a small real body and long upper and lower wicks. The real body can be green or red, indicating a bullish or bearish sentiment, respectively. However, the color of the candle is not as important as its shape. The long wicks represent the price range of the candle and show that there was a significant price movement during the candle’s timeframe. The small real body indicates that the opening and closing prices were close to each other.
Spinning Top Candle vs. Doji
They are similar to doji candles in that they both indicate indecision in the market. However, candles have a small real body and long upper and lower wicks, while candles have a very small or non-existent real body and long upper and lower wicks. Doji candles are usually considered more significant than spinning top candles because they indicate an even greater level of indecision.
Spinning Top Candle Examples
Let’s look at some examples of spinning top candles and how they can be used in trading.
Candlestick charting forming after a downtrend. The spinning top candle indicates indecision in the market, and the next candle is a bullish candle, suggesting a potential trend reversal. Traders could use this signal to enter a long position.
Spindle top, forming after an uptrend. The spinning top candle indicates indecision in the market, and the next candle is a bearish candle, suggesting a potential trend reversal. Traders could use this signal to enter a short position.
Limitations of Spinning Top Candles and How to Overcome Them
Spinning top candles are not foolproof, and traders should be aware of their limitations. For example, it can occur during periods of consolidation, where the market is not trending in any direction. In these cases, candles may not indicate a trend reversal.
To overcome these limitations, traders can use spinning top candles in conjunction with other technical analysis tools. For example, traders could look for spinning top candles forming at key support or resistance levels, or use indicators such as moving averages or trendlines to confirm a trend reversal.
In conclusion, spinning top candles are a useful tool for traders looking to identify potential trend reversals. Traders should be aware of their limitations and use them in conjunction with other technical analysis tools for more accurate signals.