Summary
- The spinning top candlestick pattern is a trading indicator that predicts the trend movement of a cryptocurrency by identifying moments of weakness and indecisiveness in the market.
- When a spinning top candlestick is formed at the peak of an uptrend, this is an indicator that there is a possibility of a trend reversal to a bearish trend after a confirmation has been made.
- When a spinning top candlestick occurs at the bottom of a downtrend, this is an indication of a possibility of a reversal to a bearish trend after a confirmation has been made.
What Is a Spinning Top Candlestick?
The spinning top candlestick pattern is a candlestick pattern that has a short body that sits between significantly long upper and lower wicks of relatively equal length. This candlestick pattern indicates indecision about an asset’s future trend direction.
How Does A Spinning Top Candlestick Form?
The spinning top candlestick pattern happens when buyers push the price up, and sellers push the price down within the same time frame causing the opening price to be very similar to the closing price, resembling a draw. For this reason, the spinning top candlestick is known as a continuation pattern.
What Does a Spinning Top Candlestick Mean?
A spinning top candlestick pattern means that both sellers and buyers were unable to gain the upper hand at an asset’s price, leading to a tie of sorts.
The spinning top candlestick pattern can be a sign of a potential trend reversal and can be used as a strategy for guessing the probability of a price reversal. It could also act as a signal for more sideways movement and may mean that more neutral movement is about to occur.
A price reversal is more likely, especially if the following candle confirms the prediction–most of the time, this is the case after a price increase or decline.
How to Identify a Spinning Top Candlestick Pattern
The spinning top candlestick pattern has some clearly distinguishable features that separate it from other candlestick patterns. Here are some pointers to spot a spinning top candlestick pattern:
- It has a short real body but is slightly longer than a Doji.
- Spinning top candlesticks have their short real bodies centered between the long top and bottom shadows of almost equal length.
- The distance between the open and close should be minimal.
The spinning top candlestick trading strategy is a great way to predict the future direction of a crypto market. When combined with other forms of technical analysis, it presents crypto traders with a great opportunity to make more accurate investment decisions.
Like most trading indicators, there are two types of spinning top candlestick patterns–bearish and bullish spinning top candlestick patterns.
Bearish Spinning Top Candlestick Pattern
When a crypto asset closes at a slightly lower price than it opened, this is a bearish spinning top candlestick, and mild selling activity has taken place. It is also known as a spinning top black candlestick.
When the spinning top candlestick occurs at the peak of an upward trend or after a bullish price action, this can indicate that the bullish side of the market is losing the upper hand and that the bullish trend is about to reverse to a bearish trend.
This is often signified by a green spinning top candlestick but is not always the case because sometimes it could take a different color. What is most important is the direction of the trend before the spinning top candlestick occurs.
The spinning top pattern can act as a first clue that a reversal will happen. However, before making investment decisions based on spinning top candlestick patterns, you should look out for a confirmation candlestick first. This will show as a candlestick of the opposite color. In the case of a bearish trend prediction, we would see a red candlestick.
Bullish Spinning Top Candlestick Pattern
When a crypto asset closes at a slightly higher price than it opened, this forms a bullish spinning top candlestick as a mild buying activity has taken place. This is also known as the spinning top white candlestick.
When the spinning top candlestick pattern occurs at the bottom of a downward trend, this could indicate that the bearish side of the market is losing the upper hand and the bullish side is about to gain control.
This is often signified by a red spinning top candlestick. When looking for a reversal, in this case, it would be signified as a green spinning top candlestick which would indicate that the bulls or buyers are back in control.
Spinning Top Candlestick Pattern vs Doji Pattern
While the spinning top candlestick pattern is very similar to the Doji pattern, it is very important that crypto traders do not confuse these two patterns. There are a number of distinguishing features that separate these two patterns apart. Here are some things to look out for:
- While the spinning top candlestick pattern has a small real body, the Doji pattern has almost no body and is sometimes represented as just a cross. The length of the body represents the difference between the opening price and the closing price.
- While the spinning top candlestick pattern has long wicks, the Doji pattern has shorter wicks. The length of the wick represents the highest and lowest prices.
How to Use Spinning Top Candlestick in Crypto Trading?
The spinning top pattern is more significant in a market with strong trends, which could either be an upward (bullish) or downward (bearish) trend. When this occurs in such a market, it acts as a signal of a potential change in the price action. In other words, it shows that the opposing force of the market may be about to gain the upper hand.
To use the spinning top candlestick trading strategy, you first need to identify the current market trend, which could either be bullish or bearish. If a spinning top candlestick is formed at the peak of a bullish trend, this is a good sign that bears may gain momentum, which also means it can likely be a sell signal. On the other hand, if the spinning top candlestick is formed at the bottom of a bearish trend, this is a buy signal – one can expect the bulls to gain control soon.
However, to verify the prediction, as aforementioned, the candle that comes next after the spinning top candlestick is crucial in confirming the new trend direction.
For example, if a spinning top candlestick pattern occurs at the bottom of a bearish price action which indicates a downward market trend, the confirmation spinning top candlestick would be a bullish or green candlestick.
Looking at the chart below, the bullish spinning top candlestick indicated at the point where the arrow is pointing–coming right after a strong downward (bearish) trend, after which there is a resulting confirmation and eventual uptrend.
Source: Phemex Testnet
Similarly, in a bearish trend reversal, if a spinning top candlestick pattern is formed at the top of a bullish price action, the confirmation spinning top candlestick would be bearish or red.
As seen in the chart below, a red spinning top candlestick is formed after a strong bullish trend, after which a confirmation candle comes next. This results at the beginning of a strong bearish trend where the bear market gains momentum.
If a spinning top occurs within a sideways range, the confirmation candle will show that it still remains in the range, which is an indication that there remains some indecision and uncertainty in the market.
To ensure the effectiveness of the spinning top candlestick strategy, it is important to combine it with other strategies. This way, you are able to check and see if other strategies agree with it.
A great way to double-check the spinning top candlestick strategy is by using the resistance line and support line strategy. When a spinning top candlestick is formed at the support level, it is likely to lead to a reversal of the market trend.
However, when a spinning top candlestick is formed in the middle of a trend and between the support and resistance levels, it is expected to continue to move in the direction of the trend.
The spinning top candlestick strategy can also be used in conjunction with the trendline strategy. When a spinning top candlestick is formed on a trendline, this is an indication that the current trend will be reversed.
Conclusion
Cryptocurrency markets are highly volatile, with constantly changing signals and trends. For new investors, this can be confusing and even frustrating as it can be hard to keep up with the constantly changing trends and make an accurate decision. While there are several signals and technical analysis indicators available for use in crypto trading, the spinning top candlestick strategy, in combination with other technical analysis tools, can be a great place to get started.
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