Spinning Top is one of the identification patterns of Japanese candlesticks. A candlestick can be represented as an up/down vertical bar having a very small rectangle body and extremely long wicks above and below the body. Due to the small body, it indicates that there was not much variation in the price from the trading period in the beginning to that towards the end. The length of the wicks’ demonstrates that the prices have fluctuated a lot before finally stabilizing near the opening price.

This pattern is important because it leads to the realization that there is always that struggle between the buyer and the seller each trying to influence the price to his or her favor. Often, when there is no winner or loser it may imply that the next step might be big.

How a Spinning Top Forms

A Spinning Top forms where there’s a pull-and-pull situation in the market. The changes in prices could be vigorously fluctuating but after a certain period, it will be comparatively stable. It is this up and down which forms the long wicks and small body of the Spinning Top.

For instance, when a Spinning Top occurs after a Bearish trend, what it trying to indicate is that a reversal is imminent or that the market is due for some consolidation. On the other extreme, if it emerges after an inclined line it may signify a slowing of the market.

Understanding the Spinning Top

When traders cannot decide which direction to take, that’s when you see a Spinning Top. What is left serves as a clue that the market is transitioning but it should not be relied upon to make massive decisions. Instead, you should keep an eye on what will happen next.

It is also important to watch out when this candlestick pattern appears during any given trend in the market as it may signal a change. However, you want to search for other signs and patterns that make you sure before you make your move.

Different Market Trends

In an uptrend, a Spinning Top might mean that buyers are losing control, and prices could start going down soon. If it appears during a downtrend, it might mean that sellers are having a hard time pushing prices lower, suggesting a possible turnaround.

In a sideways market, where prices are moving up and down within a narrow range, Spinning Tops are common. In these situations, the pattern doesn’t always mean much because indecision is typical.

Using Spinning Top in Trading

Merchants apply the Spinning Tops to predict the shifts in the market. Of course, it’s necessary to use this pattern in conjunction with other indicators, such as Bollinger Bands or support and resistance levels interpreted as moving averages.

For instance, if a Spinning Top appears in proximity to a key support or resistance level, then it will be a greater signal that a reversal can occur. However, trading based on Spinning Top alone is rather reckless, as it points towards a lack of direction of a trend, not its presence.