A spinning top is a single candlestick pattern that has a body in the middle of two longer wicks. A spinning top chart pattern is a signal that neither buyers or sellers have control of price action in the time frame of the candle.
The spinning top candle shows that price ended up closer to the open or the close at the end of the time frame than to the extremes of the trading range, this shows the chart is indecisive for the current trend. The range of the candles long wicks shows volatility and how at different points in the time frame of the candle both buyers and sellers had control but both failed to follow through and create a swing or trend in price.
A spinning top candle is primarily used in technical analysis as a signal that a trend is ending. If the spinning top candle forms after a trend or swing in a market’s price action it can signal a high probability of a reversal. It is an indecision candle with expanded volatility showing that the current direction of the move on the chart is losing momentum.
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When a spinning top occurs in an uptrend or upswing in price action it can be showing that buyers are losing momentum and the chart could be near to making a short term top. When a spinning top occurs during a downtrend or down swing in price action it can be showing that sellers are losing momentum and the chart is near making a short term bottom.
- Spinning top candles tend to be nearly symmetrical, with upper and lower wicks of approximately the same size.
- The body must be smaller than the wicks.
- The pattern shows indecision and greater odds of a reversal of the current trend or at least the beginning of sideways price action.
- This candle shows buyers losing conviction in an up move or the charts running out of sellers at lower prices in a down move.
- Many traders wait for one more candle after the spinning top to confirm the reversal and increase the odds that the signal is valid.
- The body of the spinning top candle can be white or black with little difference in meaning.
Like all technical analysis it shows a higher probability that one thing will happen over another but position sizing and stop losses are always important to use to manage the risk of being wrong about a trade.
Chart Courtesy of TrendSpider.com