Hello, my dear readers. We now know that trading in financial markets requires certain skills. This may seem difficult for some at first glance. But in fact, if we learn some simple rules, we can easily apply them in our trading. If we can analyze Japanese candlesticks, this can give us some advantages in our trading. Candlestick patterns are some of the tools involved in technical analysis. Candlestick patterns used in technical analysis help us interpret price movements and make more informed buying and selling decisions. Today, we will look at one of them, the "Spinning Top" candlestick pattern.
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| Spinning Top Candlestick Pattern |
- Topic: Spinning Top
- Type: Dual
- Trend direction: Reversal and continuation
What is the Spinning Top candlestick pattern?
"Spinning Top" is a candlestick pattern seen in
both bullish and bearish markets, consisting of a single candlestick. In this
formation, the body of the candle is relatively small, with long upper and
lower shadows. It usually indicates that there is a certain balance between
buyers and sellers and that the market is undecided. If the Spinning Top
candlestick pattern forms at the end of a trend, it may indicate that the trend
is slowing down or reversing. In some cases, this pattern can also signal that
the current trend will continue.
How to identify the Spinning Top candlestick pattern?
The Spinning Top pattern can appear in both uptrends and
downtrends. If it forms at the end of an uptrend, it's called a Bearish
Spinning Top pattern, and if it forms at the end of a downtrend, it's called a
Bullish Spinning Top pattern. These two patterns also differ in candle color.
Both Bullish and Bearish Spinning Top patterns consist of a single candlestick,
but they appear in different colors.
Bullish Spinning Top:
This pattern forms at the bottom of a downtrend and
indicates a balance between buyers and sellers, signaling that a trend reversal
may be imminent.
- Candle Body: It has a small body, and the opening price is close to the closing price. However, if the closing price is higher than the opening price, it indicates a decrease in bearish pressure and that bulls are starting to push prices upward. A short body is colored green.
- Candle Shadow (Wick): Both upper and lower long shadows can draw more attention. Long shadows indicate a tug of war between buying and selling. This tug of war shows that the price moved both up and down but ultimately closed near the starting level.
Bearish Spinning Top:
This pattern may form at the top of an uptrend. Since it
occurs in an uptrend, it is considered a sign of a reversal.
- Candle Body: The starting and ending points of prices are nearly the same, completing with a small body. However, if the closing price is lower than the opening price, it may indicate that the bullish trend is weakening, and bears are starting to pull prices down.
- Candle Shadow (Wick): Wicks that extend both upwards (top) and downwards (bottom) indicate a strong tension between buyers and sellers. These wicks show that the price has fluctuated both upwards and downwards, indicating an uncertain direction.
Whether it is a Bullish Spinning Top or a Bearish Spinning
Top pattern, it visually reflects uncertainty and balance in the market. This
balance does not last long, and after uncertainty, a change becomes inevitable.
How to trade the Spinning Top candlestick pattern?
The Spinning Top candlestick pattern can occur in both bull
and bear markets. It is usually seen at the end of trends and indicates a trend
reversal. The important thing is to identify the trend in which the Spinning
Top pattern occurs, and we can take positions accordingly. Let's examine the some
examples together.
1. Trading with Bullish Spinning Top pattern
The Bullish Spinning Top typically appears during a
downtrend and indicates an upward reversal signal. If this pattern is seen near
a strong support level or above a specific moving average, the likelihood of
the beginning of a bullish trend becomes more certain. If the following
candlestick closes upwards, it increases the probability of the uptrend
continuing. We can evaluate this situation and switch to a long position
strategy.
- Buy (Long): Those who want to act earlier can place a buy order above the closing price, but waiting for the confirmation candlestick would be more reliable.
- Stop Loss: If you are trading solely based on the Bullish Spinning Top pattern, placing the stop-loss order below the lowest level of the candlestick is the primary option. If you are trading based on moving averages or support levels, you can place the stop loss order below these levels.
- Take Profit: The take profit target can be set using the next resistance level or Fibonacci extensions.
A Bullish Spinning Top can also occur within a strong bullish trend and can signal that the trend will continue. You can see an example of
this in the following CNH/JPY 4-hour chart:
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| Bullish Spinning Top suggests bullish continuation on the CNH/JPY chart. |
2. Trading with Bearish Spinning Top pattern
The Bearish Spinning Top candlestick pattern emerges at the
end of an uptrend, indicating the approach of the bullish trend's end. After a
brief uncertainty, price declines begin. If this pattern is observed near a
strong resistance level or below a specific moving average, it can be a
reliable signal to take a short position. If the following candlestick closes
downward, there is a greater possibility of the downtrend continuing.
- Sell (Short): A level below the closing price allows us to take a short position. However, the safest option is to take a position after the confirmation candlestick.
- Stop Loss: We can place the stop loss order above the highest level of the candlestick.
- Take Profit: The take profit target can be determined using the next support level or Fibonacci extensions.
Bearish Spinning Top may not only signal a trend reversal
but also indicate the continuation of the trend. As seen in the 4-hour chart of
the Chinese Yuan/Singapore Dollar below, the Bearish Spinning Top candlestick
pattern emerged within a strong bearish trend and indicated that the current
trend would continue:
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| Bearish Spinning Top suggests bearish continuation on the CNH/SGD chart. |
The following 4-hour chart of the US Dollar/Singapore Dollar
includes trade examples with Bearish Spinning Top and Bullish Spinning Top
candlestick patterns. Both patterns represent trend reversals according to
general rules. You can review the chart if you wish:
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| Bearish and Bullish Spinning Top Patterns signal Trend Reversals on USD/SGD chart. |
Let it be known that: This information is for educational purposes only and should not be construed as investment advice. Unexpected events and news can disrupt our strategy and affect financial markets. In this case, the "Spinning Top" candlestick pattern may give false signals. It should never be used as a trading signal alone and should be evaluated together with other technical analysis tools and indicators. Forex trading is full of uncertainties. Please trade with amounts that you will not be upset to lose. Trade wisely and prosper!