A Spinning Top is a candlestick that indicates indecision in the market. It can be a warning signal that a potential change in outlook is developing. It is a small-bodied candlestick with long upper and lower shadows.
The position of the candlestick “body” around the mid-point of the daily range suggests neither the buyers nor the sellers have decisively won the session. It is similar to the “Long-legged Doji”. However, unlike the doji pattern, a Spinning Top does hint at the next potential direction, with the CLOSE price being slightly above or below the OPEN. A Bullish Spinning Top has a CLOSE slightly higher than the OPEN and hints at the buyers trying to gain control. A Bearish Spinning Top has the CLOSE below the OPEN and suggests that the sellers getting ready to control the market.
The indication of the uncertainty and potential change in outlook are best taken following a trending phase in the market. If a Bullish Spinning Top is seen after a long downtrend (ideally after a long run of negative candlesticks) this is a good indication that the market may be in the process of turning.
| SPINNING TOP | |
| Price action | The OPEN price and CLOSE price are near to each other and are around the middle of the session range. A sharp move up to the HIGH is retraced and a sharp move down to the LOW has also been retraced. |
| Spinning Top types | Bullish Spinning Top The CLOSE price is slightly higher than the OPEN. This leaves a small positive price move on the session. |
| Bearish Spinning Top The CLOSE price is slightly below the OPEN. This leaves a small negative price move on the session. | |
| Time horizon | Spinning Tops can be effective across all time scales from 5-minute charts up to hourly, daily and weekly. The longer the time horizon, the more significant the uncertainty becomes. |
| Psychology | There are significant price swings throughout the session, but the CLOSE price being almost equal to the OPEN reflects indecision.If a Spinning Top candle comes after a long and decisive trending move, this indecision can indicate a potential change in the market outlook. |
| Confirmation | The next candlestick is necessary for confirmation. If the change of trend develops further with the next candle, this confirms the significance of the Spinning Top. |
| High Conviction | The Spinning Top is a warning of a potential change. It implies indecision. Therefore, the next candlestick is important for conviction. |
| Lower Conviction | A Spinning Top candle posted during a consolidation phase in the market is a low conviction signal. |
| A warning | Trading a Spinning Top candle in isolation is a high-risk strategy. It needs subsequent candles for confirmation and therefore, we would always prefer to use it as part of a package of signals. |
| Potential Stop-Loss | If a change of trend has been determined by the next candle then the stop-loss for a: Bullish Spinning Top signal can be placed for long positions below the LOW of the candle.Bearish Spinning Top signal can be placed for short positions above the HIGH of the candle. |
