Trading with the spinning top candlestick pattern
Candlestick patterns as you know are patterns that are formed based on the buying and the selling activity in the markets. Due to the nature of how candlestick are constructed, some distinctive patterns emerge that you can rely upon.
There are many types of candlestick patterns. Some rely on the combination of three and up to five candlesticks, while some are individual candlestick patterns. These patterns are more reliable compared to the other combinations because they are powerful patterns.
the spinning top or the spinning bottom candlestick pattern are two very unique bullish and bearish candlestick patterns.
They are easy to spot and the best part is that you can use these patterns into your existing trading strategy as well.
One of the best ways to use a candlestick pattern is as a timing tool. For example, if you have a buy signal that is given by your trading system, then instead of just going long, you can wait for additional confirmation by the candlestick pattern .
This way, it becomes easy for you to manage your risk and also helps you to enter the market at an opportune time. The study of candlesticks is relatively new as you might know. These charts were introduced by the Japanese rice traders early on in history. It was brought to the Western world only a few decades ago.
Despite being rooted in ancient history, the candlestick charts have managed to accurately predict the sentiment behind the security that is being traded. Another advantage about learning about the spinning top and the spinning bottom candlestick pattern is that they are relatively easy to spot.
It might take a bit of time initially, but once you have trained yourself into using this candlestick pattern , it can become like second nature to you.
What is the spinning top in candlestick?
A spinning top is a name given to a certain pattern that is formed in the markets, when you are using the candlestick charts. As the name suggests, it looks like a top that children play with.
The difference is of course that the spinning top pattern is identified by a small body but with long upper and lower wicks in a candlestick chart.
As you know, a candlestick chart is characterized by the body which indicates the open and the close prices and the wicks that indicates the high and the low for the session that you are analyzing.
The first chart below gives an example of a spinning top pattern.
Note that there are two kinds.
- The spinning top candlestick pattern is formed usually near the highs. It comes at the end of a rally and can potentially signal that the buyers are losing interest. Therefore, a spinning top candlestick pattern is a bearish candlestick pattern . When this pattern forms, you can expect prices to fall (or at the very least correct the trend if not reverse).
- The spinning bottom candlestick pattern is formed near the lows. This pattern emerges at the end of a downtrend. When the spinning bottom candlestick forms, it is a signal that the sellers who were in control of the downtrend are losing interest. Therefore, when you a see a spinning bottom candlestick pattern , you can expect price to reverse direction and potentially move to the upside.
How is a spinning top candlestick pattern formed?
A spinning top candlestick pattern , as the name suggests forms at the top. The best spinning top patterns are those that close bearish. Meaning that the closing price is lower than the opening price. And of course, you have the long upper and lower wicks.
When you see this pattern, you can expect prices to reverse course. You will however need to have this validated by other technical tools such as a sell signal given by the stochastics oscillator or when this pattern is formed near a previously known resistance level.
But it is not always that you will find the perfect spinning top pattern. In this case, the next best signal to rely upon is the pattern itself, regardless of how the prices closed. Thus, you can find a spinning top pattern to form even if it is bullish.
Spinning Top candlestick pattern Example
In the above example, you can see the spinning top pattern being formed. What’s interesting to note here is that we have two spinning top patterns that are formed side by side.
The first pattern is the perfect ideal spinning top pattern that we look for. Following this, price forms another spinning top pattern. You can notice that price barely moved comparing the second spinning top pattern to the previous one.
The appearance of these patterns near the top end of the rally signals that the markets are exhausted to the upside and thus, the buyers take a back seat. We can expect price to fall or reverse the course.
How is a spinning bottom candlestick pattern formed?
A spinning bottom candlestick pattern , as the name suggests forms and the bottom of a trend. Ideally, a good spinning bottom candlestick pattern is one that closes bullish. This indicates that the sellers who were in control of the downtrend lost interest and buyers were able to push price higher.
When this ideal pattern is formed, depending on validation from other technical tools, you can easily look for long trading opportunities in the market. Make sure that the spinning bottom pattern is validated by other means such as a buy signal or when the pattern forms near the support level that is recognized.
In real time trading, you will not always come across a valid spinning bottom pattern. Therefore, traders tend to ignore the way price closed, as long as the pattern is a valid spinning bottom pattern.
Spinning Bottom candlestick pattern Example
In the above example of a spinning bottom pattern, you can see that how price swiftly rallies higher right after this pattern is formed. Notice that the spinning bottom pattern formed after a brief decline in prices.
But once the pattern emerges, the next candlestick turns bullish and price starts to move higher as a result. You can see how the spinning bottom pattern in this case has helped to understand the potential change in direction of the course.
Is the spinning top pattern similar to a doji candlestick pattern ?
Not really. A doji candlestick pattern forms when the open and the close are almost the same. The doji candlestick pattern of course has long upper and lower wicks. The doji candlestick pattern as you might already know signals indecision in the markets.
You can start to build a fair idea that the doji candlestick pattern exhibits same similarities as a spinning top or a spinning bottom pattern. Yes, in a way they are both related. But the difference is in the open and close prices.
While dojis tend to exhibit almost same open and close prices, with the spinning top and the spinning bottom candlestick patterns, there is a significant difference between the opening and closing prices.
Still, the appearance of these two patterns signal the same thing, which is that the buyers or the sellers who were in control are losing interest. This could mean that the direction of price could change in the near term.
Another point to remember is that a spinning top pattern forms near the top end of the rally. It is a bearish candlestick pattern . Likewise, a spinning bottom pattern is formed near the end of a downtrend. This is a bullish candlestick pattern .
When the doji pattern is formed, there is no saying that price will reverse course. Following a doji, which is an indecision in the markets, you can expect price to resume the previous trend the next day.
Therefore, while the spinning top and the spinning bottoms are reversal candlestick patterns, with the doji candlestick pattern , they can indicate both. This makes the doji both a reversal candlestick pattern as well as a continuation candlestick pattern .
Where can you use the spinning top and the spinning bottom candlestick patterns?
The spinning top and the spinning bottom candlestick patterns are reversal tools. They are formed at the end of a trend. Therefore, firstly you should discard any spinning top or spinning bottom patterns that form within a trend.
This can be done by analyzing how price behaves in the next session . If you see that the previous trend is continuing, then you can assume that it was not a spinning top or a spinning bottom pattern.
The most ideal spinning tops and spinning bottom candlestick patterns form at the top or bottom. So therefore, firstly pay attention to the previous trend. There should be a strong trend in place in order for the spinning top or the spinning bottom candlestick pattern to form.
Once you find the pattern and it is validated by comparing to the previous trend, the next step is to plot the support and resistance levels. These levels are formed by analyzing past price action.
Make sure that the support and resistance levels are fresh and haven’t been tested too many times. The more times a support or a resistance level is tested, the weaker the chances that it can hold the price when that level is being tested once again.
It is recommended that you wait for the next candlestick pattern to form. Ideally, this should be bearish when you see a spinning top pattern or bullish when you see a spinning bottom pattern.
Wait for price to close lower than then enter the trade. Stops can be placed a few pips high above or below the spinning top and the spinning bottom pattern respectively.
Spinning top and bottom patterns within support and resistance levels
The above chart illustrates the use of the spinning top and the spinning bottom pattern. Notice how price behaves as it approaches one of these key levels. Depending on the momentum, you can see price initially reverses in some cases while in other cases, you can see the direction being changed dramatically.
Another way to use the spinning top and the spinning bottom pattern is to use with moving averages. When price deviates too far away from the moving average, you can expect price to revert back to the moving average.
Look for spinning top and spinning bottom patterns that are formed near these levels as they can help you to trade with the trend. The concepts of identifying the spinning top and the spinning bottom pattern remains the same as outlined previously.
In this case, you will be using the moving average as the support or the resistance level. A touch and go spinning top or spinning bottom pattern to the moving average can mean that the larger trend is resuming.
Thus, these reversal patterns can help you to jump back into the trend with relative ease.
Other common uses of the spinning top and the spinning bottom patterns include:
- Pivot levels
- Fibonacci retracements
- Bollinger bands
- Moving averages
- Momentum oscillators
You can use a combination of any of the above methods to validate the spinning top or bottom candlestick pattern .
The spinning top and the spinning bottom pattern – Conclusion
In conclusion, the spinning top and the spinning bottom pattern are two visually easy to detect candlestick patterns. It is ideal if you have these patterns in your trading toolkit as they can enhance your trading strategy very much.
Never use the spinning top or the spinning bottom candlestick patterns in isolation.
Sometimes, the markets can continue their direction and you should avoid trading these patterns just by their appearance.
Instead, you should be looking for additional validations from your existing trading systems or using support and resistance levels or the daily pivot patterns in order to trade successfully with the spinning top and the spinning bottom patterns.
One of the unique things about candlestick patterns is that they are valid regardless of which time frame they form in. Therefore, traders can easily adopt using the spinning top and the spinning bottom pattern whether they are swing traders or day traders.