How does the Spinning Top candlestick work?

Forex is a volatile market where the slightest movement on the charts can significantly affect a trade. Traders ought to employ reliable tools to analyse market behaviour in real time with minimal risk. A Spinning Top candlestick is one of the most effective candlesticks for tracking market trends.

What is a Spinning Top candlestick?

A Spinning Top candlestick is a technical analysis pattern showing market uncertainty. Here are its main characteristics:

• Small body. The candle's body demonstrates the difference between the opening and closing prices. Its small size indicates that the pressure from bears and bulls is almost equal.
• Long shadows. The candle has long upper and lower shadows. They signal significant price fluctuations during a specific timeframe.
• Unpredictability. A Spinning Top candle alerts of a potential trend change, such as a slowdown in the current trend or a possible change in the direction of price movement.

1. Entry level
2. Stop loss

Combined with other analysis tools, Spinning Top can help traders understand whether it is worth continuing to trade or exit a position.

How does a Spinning Top candlestick work?

The Spinning Top candlestick appears in situations of uncertainty in the market, namely:

• After a big trend, if the Spinning Top candlestick occurs after a strong trend (ascending or descending), it signals a possible change in the direction of price movement. For traders, this is a sign of a weakening of the current trend.



• Near the support and resistance levels. If the Spinning Top candlestick appears near support or resistance levels, it signals a possible consolidation or trend reversal. The example below shows the spinning top at a resistance level.



• In a moment of uncertainty between the participants, if the Spinning Top candlestick occurs during the trading period, it indicates that both sides tried to control the price, but neither prevailed. For instance, during a bearish trend, there is uncertainty in the market or a slowdown of the bearish trend.

Difference between Spinning Top and Doji

In trading, both the Spinning Top and Doji are the candlestick patterns of technical analysis that signal market uncertainty. Despite the common goal they pursue, there are some differences in their structure and interpretation:

Before engaging in Forex trading, it's crucial to thoroughly understand the differences between the Spinning Top and Doji patterns. This knowledge will ensure that traders are well-informed and prepared to make sound decisions and execute successful transactions.

Pros and cons

The effectiveness of the trading strategy depends on how traders use it. Suppose you carefully analyse the context, apply it to confirmatory signals, and know how to manage risks. In that case, the Spinning Top candlestick pattern will bring you the following benefits:

• Early warnings about possible trend changes. For example, the appearance of a Spinning Top after a strong uptrend may signal that the current trend is losing its strength. That is, buyers are starting to lose control over the price. By looking at the chart, you can prepare for a possible reversal and devise a plan of action—to keep trading or close the position.
• The Spinning Top pattern is characterised by a small body and long shadows, making it easily recognisable on a chart. This simplicity in interpretation can give traders a sense of ease and confidence in their analysis.
• Clear volatility signals. Long shadows indicate the activity of buyers and sellers during a specific timeframe. This allows traders to understand how the market reacts to certain price levels—increases, stagnations, or decreases.

Unfortunately, beginners and inexperienced traders who use the pattern for the first time risk getting an inaccurate analysis due to several disadvantages of the method:

• Risk of false signals. High volatility and periodic market changes often force traders to enter or exit positions prematurely.
• Limited applicability. The Spinning Top pattern is effective in short-term trading. However, the market analysis results based on the chart from a long-term perspective may be unreliable, making the method less versatile for various trading strategies.
• Strong emotional impact. When the Spinning Top candlestick appears on the chart, traders get nervous, often forcing them to make emotional decisions rather than logical ones, which is very dangerous in trading, where everything is based on calculations.

Example

Imagine that on the daily chart of the GBPAUD currency pair, the market trend has been bullish over the past few days. However, the Spinning Top candlestick appeared on the chart on the day.

The candlestick has a small body and long upper and lower shadows, indicating significant price fluctuation during the day. Despite this, the closing and opening prices are almost equal. Here are the main characteristics of the candle:

• Opening price: 0.98421
• Closing price: 0.98943
• Long upper shadow: 0.99755
• Long lower shadow: 0.98074

Now, let's take a look at the pattern's interpretation:

• Long upper shadow. The long upper shadow indicates that sellers showed strong interest when the price reached 0.99755. At this level, there was an apparent resistance between the sides. The market was under sellers' pressure, so buyers couldn't keep the price above 0.99755.
• Long lower shadow. The long lower shadow shows sellers tried to lower the price to 0.98074 at the beginning of the day. Buyers joined the fight and pulled the price back to the opening level.
• Body. The small size of the candle's body indicates that the strengths of buyers and sellers were approximately equal during the day. The closing price of 0.98943 and the opening price of 0.98421 are almost identical.
• Continuous trend. Buyers are losing power since the Spinning Top candlestick appears after several days of an uptrend.

If the price continues to rise for several days, but the fluctuations are already visible on the chart, this may indicate an upcoming change in direction. There is a strong possibility of a trend reversal in the coming days.

What is the best timeframe to use for the Spinning Top candlestick?

Most experts say that the Spinning Top candlestick pattern works best in the timeframe of daily bars. This model is effective for several reasons:

• More accurate review. Daily candles display price movements for the whole day. This gives traders a detailed picture of the market sentiment and possible prospects for price movements in the near future.
• Instant reaction to any updates. Daily bars are inherently connected to news and events affecting the market. Any significant news flow that occurred during the day will be taken into account in the opening price and closing price.
• Reduced noise level. Lower time intervals (minute or hour charts) are subject to small price fluctuations, which may lead to false signals. On the daily charts, volatility is more smoothed.

However, it would help if you chose a suitable timeframe based on your trading strategy. Use weekly charts to identify significant market trends if you are a long-term trader.

Those who prefer intraday trading should turn to hourly charts since they can identify short-term signals more clearly.

A more versatile option is a four-hour chart. It provides enough information for analysis and is suitable for short—and medium-term trading.

Final thoughts

• A small body and long shadows characterise a Spinning Top candlestick pattern.
• It indicates market uncertainty, signalling potential trend reversals or consolidations. It is beneficial after significant price movements or near support and resistance levels.
• Both the Spinning Top and Doji signal uncertainty, but the latter often indicates stronger neutrality.
• The Spinning Top is praised for its straightforward interpretation and ability to signal volatility. However, you should remember the risk of false signals and avoid emotional decision-making.
• Forex trading requires a comprehensive approach to market analysis. Use the Spinning Top candlestick pattern along with other tools (support and resistance levels, MA, MACD, etc.) and create more effective trading strategies for successful transactions on an ongoing basis.