The Definitive Guide To Spinning Top Candlestick Pattern
Moreover, no candlestick formation guarantees a trend reversal, not even a common candlestick pattern. Price movements can go in any direction and a candlestick pattern only reflects changing sentiment that has shown a tendency to reverse trends based on historical price behavior. Fourth, using volume with price action is crucial in understanding the market context of the spinning top pattern. For instance, as we can see on the chart, the spinning top is backed by substantial volume, roughly twice the daily average. This can indicate that the upcoming move will likely be significant in either direction—further trend continuation or possible reversal. Upon seeing the potential reversal confirmation or continuation candle, we can take a position and closely watch the volume for any significant spike to guide our trailing stop.
Utilizing the spinning top candlestick effectively requires a combination of observation, context, and corroborative indicators. First and foremost, traders should identify the spinning top on their charts, noting its distinctive small body and long shadows. The preceding trend, be it bullish or bearish, can provide insights spinning top candle into potential future movements.
As a spinning top only tells us that the market is hesitant about where to head next, there is a quite big chance that it will continue in the dominant trend direction shortly thereafter. That’s why we might want to have some sort of confirmation in the form of price action, before we enter the market. Most markets have some type of seasonal or time-based tendencies, meaning that they aren’t equally bullish or bearish all the time. For example, there might be certain days, months, hours or weeks, that time after time show bearish or bullish tendencies. Trading Futures and Options on Futures involves a substantial risk of loss and is not suitable for all investors.
In this guide, you’ve learned not only how to identify a spinning top pattern, but also how you could go about to improve the accuracy of the pattern for real trading. The volatility of the market could have a great impact on price patterns and their accuracy. Sometimes a pattern will only work in a highly volatile market, while the opposite sometimes holds true as well. Now, another great way to see whether a spinning top is worth taking or not, is by using some sort of filter that measures overbought and oversold conditions. Generally, when securities like stocks have gone too far in one direction, they tend to revert back. Following this, we might only want to take a trade if the market is overbought or oversold, depending on if you’re going short or long.
The absence of a strong trend after a Spinning Top formation suggests market consolidation. Set profit targets using tools like pivot points, Fibonacci extensions, or nearby resistance levels. Where spinning tops appear within a trend is key to their interpretation. According to Tom Bulkowski’s research, spinning tops result in reversals about 50% of the time. The color of the spinning top provides additional insights into market sentiment.
