Spinning tops candlesticks are candlesticks with a short body with two long legs on either side. It is different from the doji candlestick in that the doji doesn’t have a body at all.
The name spinning came from the fact that it is not very clear where the market is headed just by looking at the candlestick alone. You will have to consider a number of other factors to determine the possible direction of the market.
A spinning top candlestick on itself is a neutral candlestick but when formed under certain conditions, it could mean a probable trend reversal.
The psychology behind the spinning tops
A spinning top candlestick forms when the market forces (bullish and bearish) change abruptly during the formation of a single candlestick. This means if you are using a daily (D1) timeframe, the abrupt change in the market forces takes place within a period of 24 hours. If using an H1 timeframe, the abrupt change that we are talking about takes place within one hour.
With that said, it is good to note that if trader identifies a spinning top while on the H1 timeframe, it doesn’t mean that the D1 timeframe will reflect the same.
For a spinning top candlestick to form, it means that the market prices moved in one direction and later changed and moved in the opposite direction before also retracing considerably leaving log legs on either side of a small body.
Does the color of the spinning tops matter?
A spinning top candlestick can be bearish or bullish. But that doesn’t really matter since in in either case the candlestick does not indicate any probable direction.
Therefore, it would not be proper to say that a bearish spinning tops signals a bearish trend nor does a bullish spinning top signal a bullish trend.
Are spinning tops always neutral?
Although the spinning tops candlesticks are normally considered to be neutral candlesticks, there are circumstances where they signal a probable market movement.
To determine if a spinning top signals any market movement, you should determine whether the spinning top forms in one of this circumstances:
Support levels: When a spinning top forms at a support level, it signals a probable change of the downtrend to a bullish trend. It shows that bullish forces are trying hard to neutralize the bearish forces. However, the trader should first confirm whether the level is a support.
To confirm this, the trader can use a technical indicator like the pivot point indicator. Also, the trader should wait for a bullish candlestick to form after the formation of the spinning top candlestick.
Resistance levels: When a spinning top forms at a resistance level, it signals a probable change of the bullish trend to a bearish trend. It shows that bearish forces are trying hard to neutralize the bullish forces. However, the trader should first confirm whether the level is a resistance.
To confirm this, the trader can use a technical indicator like the pivot point indicator. Also, the trader should wait for a bearish candlestick to form after the formation of the spinning top candlestick.
Fibonacci retracement levels: when spinning tops form at a Fibonacci retracement level, it could indicate a probable retracement. Therefore, the trader will need to first draw the Fibonacci levels so as to determine whether the spinning top has formed on a Fibonacci level.
Price confluence levels: confluence levels basically mean levels at which certain conditions (especially those conditions identified using technical indicators) meet. For instance, you could have a trend line meeting a Fibonacci level. Another example is a rising trend line meeting a support level.
If a spinning top form at such a place then it could signal a probable reversal of the market trend. For instance, if a spinning top forms where a trend line meets a Fibonacci level, then it shows that there could be a possible retracement.
If a spinning top forms where a trend line meets a support level, then we could be headed for a trend reversal.
Exiting orders placed using spinning tops candlestick patterns
A trader should always ensure that he/she uses at least one technical indicator when it comes to placing trades after identifying the formation of a spinning top candlestick. This is because, if a spinning top form at any other time other than in the above outlined circumstances, then it does not signal anything and it can be as well ignored.
To exit the orders, traders should use reasonable take profits and stop loss levels or choose to use technical indicators to identify when the conditions change.