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What is a spinning top candlestick pattern?

A spinning top is a candlestick formation that signals indecision regarding the future trend direction.

Similar to a doji pattern, a spinning top is considered a neutral pattern, although many do end in reversals.

This candlestick formation signals indecisiveness amongst buyers and sellers, as neither of these sides has the upper hand, which is why it is classified as a neutral pattern.

It is important not to confuse the spinning top with the doji candle - we will address this in more detail below.
Pattern structure A spinning top pattern is formed by a single candle, with long wicks extending higher and lower, and a short body.

Ideally, these two wicks should be of similar length, with a short body and a small difference between the opening price and close.

A spinning top candlestick pattern

 If you look at the image above, you see two long wicks extending to the upside and downside.

What has actually happened is that the price action moved in one direction before aggressively reversing and going in the opposite direction. Finally, both sides settled for a draw as the price action closed near its opening price.
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What a spinning top indicator can tell you As stated above, the spinning top pattern signals indecision among the bulls and bears. It is important to note that this pattern is much stronger in a trending market, be it uptrend or downtrend.

When it takes place in a choppy market, it cab be seen as another signal that there is no clarity in the price action.

In a strong uptrend or downtrend, the spinning top shows there is a new balance of forces in the price action. Unlike the previous sessions, where one side dominated the market and pushed the price action in its desired direction, a spinning top signals that the opposite side of the market is now growing in the game, and the short-term outcome is uncertain.

As with almost all candlestick patterns, the role of the next candle is important.

In case of a reversal, the candle next to the spinning top should be opposite of the prevailing trend, while for continuation patterns, you look for a candle that goes in the same direction to confirm that the price action is continuing in the same direction.
Differences with other candlestick patterns
As mentioned earlier, the shape of the spinning top pattern is very similar to a doji candlestick pattern. Both have wicks that extend higher and lower and are considered to be neutral patterns. Obviously, when they occur at the end of a trending movement, they are most likely to result in a reversal.

A difference between a doji candle and spinning tops

 You can see that doji candles have a shorter wick and no, or almost no body. On the other hand, spinning tops have longer wicks that extend to both sides, while the body is also longer, although the distance between the open and close should be small.

In the end, it’s not a big deal if you can’t tell the difference. What is important is that both of these candlestick patterns send a message of indecision amongst buyers and sellers, which is further strengthened if any of these two patterns takes place at the end of an uptrend or downtrend.
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How to trade the spinning top pattern Trading the spinning top pattern is no different to trading other candlestick formations. As they are considered to be a common candlestick pattern, you may often see a spinning top formation in charts, and thus, you should be prepared to act accordingly.

Looking at the picture below, we have a GBP/USD daily chart.

Trading a spinning top pattern

 The price action is moving higher to a point where it prints a new short-term high, but the bulls fail to force a high close, so instead, the price closes near the opening price.

An end to a strong impulsive move upside has actually started with a spinning top pattern. You can either wait for a confirmation candle or open a trade as soon as the spinning top formation is created. A stop-loss order should be placed just above the previous high.

With take profits you can be more flexible and this depends on your risk tolerance.

We placed it at the previous resistance, now acting as a support. In the end, the price action rotated lower to retest the support and hit our profit-taking order. We risked 60 pips to make around 170 pips, a situation that offers a great risk-reward ratio.

A similar situation develops in the USD/CAD daily chart below.

Trading a spinning top pattern

An impulsive bullish move takes place before consolidation takes place at the end of an uptrend, including a spinning top candle, whose top is actually the marginal new high.

The investors realize that the bulls are losing their momentum, as there is a certain degree of hesitation at the top to continue in the same direction. As a result, a sharp move to the downside starts and ultimately, the bulls lose all of their recent gains.

As with the first example, you can choose whether to open a trade immediately after the spinning top pattern is formed, or wait for the next candle and receive further confirmation of an impending reversal.

This chart offers a nice insight into how reversals take place. As you can see, a few candles prior to the spinning top are all sending signals of indecision.

Therefore, it’s not a surprise that there is a change in the trend direction.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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