Learn how to effectively trade the spinning top candlestick patterns in the stock market with MoneyWiseMind's comprehensive guide. Discover the key characteristics of this patterns and how to interpret it to make profitable trades. Improve your trading skills and increase your chances of success with our expert insights. Read now!
Before I go deep into the subject I want to discuss some theoretical aspects on Candlestick. We use candlestick to identify trading patterns. The patterns help us to establish a trading set up.Two or more candles in a definite order create patterns. Sometimes, a single candlestick patterns also gives us strong signals. So, we can divide candles into two categories-first one is a single Candlestick patterns and 2nd one is multiple Candlestick patterns.
Today we will discuss about a famous and interesting single Candlestick known as Spinning Top.
What is Spinning Top?
A Spinning top is a candlestick patterns that has a small real body with long upper and lower wicks or shadows.
Like a doji it also indicates indecision about the future trend of the market. However, the spinning top gives us useful information about the current market condition. On the basis of this information traders can make their positions in the market.
Below are the examples of spinning top candlesticks (Bullish and Bearish) picture
We can see that the candles have a small real body, the upper and lower wicks are almost equal and long.
Spinning top has three parts:
1.The Upper Wick:
The upper wick connects the real body to the highest point of the price. If it a green candle then the 'high' and ‘close’ are connected. If it is a red candle then the ‘high’ and ‘open’ are connected.
2. Small Real Body:
A small real body is an indication that the open price and the close price are quite near to each other.
Suppose, if the open price is 530 and the close price is 535 then it will definitely lead to create a small body as the 5 points difference is not much.
The colour of the candle does not to matter as the opening and closing price are close to each other.
3.The Lower Wick:
The lower wick connects the lowest point of price with the real body.
If it is green candle then the'low' and ‘open’ prices are connected. If it is a red candle then the ‘low’ and ‘close’ prices are connected.
What is the logic behind Spinning Top Candle?
The upper shadow indicates that the bulls made an attempt to push the price higher but they were not able to doing so. Hence the price closed nearer to the open price and so the body is small.
The lower shadow tells us that the bears made an attempt to bring the price down but they were not able in doing so. Hence the price closed nearer to the open price. So the real body was small.
How to trade the spinning top candlesticks?
If the spinning top is formed at the bottom in a down trend, it could mean that a bullish reversal might happen. That means the market has made a bottom for the time being. Conversely, if it is formed at the top in an uptrend, a bearish reversal might happen. That means the market has made a top for the time being.
After getting confirmation with the help of other parameters such as volume, RSI etc. one can take position in the market. Below chart is an example of spinning top in Deepak Fertilizers on daily chart. On 28th March, 2023 a spinning top candle formed after a long downtrend. The stock made a low around 510 and closed at 525 nearer to the open price. This zone was also multiyear support zone on the basis of monthly TF. Next day , when the next candle crossed the high of 534 the stock rallied upto 670 till date. This is a bullish set up example.
On the left below picture shows an example on Maruti Suzuki weekly chart of buying set up. On the right we have another example of bullish set up on Dow Jones Industrial Average
In first week of March, 2022, Maruti Suzuki had made a low of around 6530 and closed at around 6988 nearer to the opening price. The next candle was a green one and after crossing the high of 7400 it continued its rally till September, 2022 making a high of around 9500.See the volume of the spinning top candle. What a golden set up!
Now, here is an example of bearish set up formed in Maruti Suzuki in January, 3rd week, 2021.The high was around 8300.After breaking the low of 7755 it had made low around 6400.What a fall!
Stop loss should be the low of the spinning top candle in bullish set up and in bearish set up stop loss should be the high of the spinning top candle. If the candle is too big then keep your stop loss at half of the candle. Or you can take help of other indicators like ATR, Moving Average, Trend line, Fibonacci etc. as per your trade management. In taking profit you can trail your stop loss or other ways that suits your skill and personality.
Here is a nugget for learning purpose. We can initiate trade after getting the following confirmations:
- The volume on the spinning top candle must be higher than previous 3-4 candles.The higher the volume higher the probability of trend reversal.
- We can watch the RSI range-shift. That means RSI should turn upward from lower range in bullish set up or may turn downward from upper range in bearish set up. We can watch RSI divergence. RSI divergence means RSI moves in opposite direction with the price movement. Price makes lower lows but RSI makes higher lows in bullish set up and price makes higher highs but RSI makes lower highs in bearish set up. We will discus in details about RSI in our future threads.
- When the spinning top candle is formed at the bottom in a downtrend that area must be a major support zone. And in an uptrend when a spinning top candle is formed at the top that area must be a major resistance zone.
If you want to avoid too much noises you can ignore the above points. I generally follow the volume part with the spinning top formation. Spinning top with higher volume gives us in 70-80% cases accurate signals. But you must have the clear concept about the market trend as a whole and then taking position in any instrument will give you better results.
We hope, you got some valuable learning materials in this post. Try to make a habit of reading at least 50 charts daily to identify the setups. Then you will be able to catch the movements of the market. If found helpful please share with your friends.
Disclaimer: The information provided on Money Wise Mind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
