Each candle in the financial market represents participants’ actions during any specific period. Learning those candle formations guides trades to make trade decisions that increase their success rate besides avoiding risky trades. The Spinning Top is a typical candle type that market participants prior while making trade decisions.
However, identifying Spinning Top and learning effectiveness is essential while executing trades using this pattern. In this following section, we will discuss the Spinning Top candle besides explaining trading strategies using this pattern with chart attachments for better understanding.
What is the Spinning Top pattern?
It is a single candle formation that signals different price movements in various phases. These candles declare confusion among participants as the difference between the opening and the closing price is not so far. The name remains the same, with a small body Spinning Top candle can have tiny or long wicks or may no wicks. The body can be red or green; the signal remains the same.
It is a typical reversal type of candle formation when it takes place on particular levels. A Spinning Top near any support line can generate a buy signal, while near the finish line of an uptrend or resistance level, it declares an upcoming price movement.
An ideal Spinning Top candle has long shadows on both sides, and the body length will be tiny when you compare it to wicks.
How to trade using the Spinning Top candles
These candles represents the consolidation phase of the price movement. The candle starts to form, and buyers may push the price higher and sell price increases below the opening price. Lastly, the closing price will be near the opening price, above or below.
So the following price movement can be neutral, or the price can continue to the current direction or change direction. Following the next candles before opening any position or observing the market context using other technical indicators is better.
For example, you may use a stochastic oscillator indicator, which may create a bullish crossover on the oversold level when a Spinning Top candle occurs, potentially opening a buy position. The Spinning Top candle represents the indecision on the price movement so using other technical info is better to obtain more accurate trading positions.
A short-term trading method
We use the Parabolic SAR and ADX indicator to determine entry/exit positions in our short-term trading method. After forming a snipping top, we will seek potential positions by observing the readings of those indicators. This trading method suits any asset class, and we recommend using assets with sufficient volatility and executing trades on London or Newyork sessions. The preferable time frame is a 15-min chart to catch potential short-term trades.
Bullish trade scenario
Mark a Spinning Top candle near the finish line of any downward movement, then observe:
- The Parabolic dot takes place below price candles.
- The ADX value is over 20.
Entry
The Parabolic dot below price candles confirms a valid swing low. Meanwhile, the increasing ADX value declares sufficient bullish pressure on the asset price, placing a buy order.
Stop loss
Your buy order’s initial SL level will be below the recent swing low level.
Take profit
Close your buy position when the bullish trend ends. A parabolic SAR dot occurs above price candles, or the ADX value starts sloping on the downside.
Bearish trade scenario
Mark a Spinning Top candle near the finish line of any upward movement, then observe:
- The Parabolic dot takes place above price candles.
- The ADX value is over 20.
Entry
The Parabolic dot above price candles confirms a valid swing high. Meanwhile, the increasing ADX value declares sufficient bearish pressure on the asset price, place a sell order.
Stop loss
Your sell order’s initial SL level will be above the recent swing high level.
Take profit
Close your sell position when the bearish trend ends. A parabolic SAR dot occurs below price candles, or the ADX value starts sloping on the downside.
A long-term trading strategy
Our long-term trading method contains a Hull moving average line and RSI indicator beside Spinning Top candles. We use HMA 20 periods and default setup for the RSI indicator. We recommend applying this method on an H4 or daily chart to obtain the most acceptable long-term trading positions you can hold for days, a few days, or even weeks.
Bullish trade scenario
Apply those indicators above on your trading chart, then observe:
- The HMA line is sloping toward the upside.
- The dynamic blue line is at the central (50) line or heading more upside.
Entry
Mark the Spinning Top pattern near any support level, match these conditions above and open a buy position.
Stop loss
Place a SL below the recent swing low of your buy order.
Take profit
Close your buy position when the current bullish trend weakens or observe the indicators when:
- The HMA line starts to slop on the downside.
- The dynamic RSI line reaches the upper (80) line or above or may start downside after reaching that overbought level.
Bearish trade scenario
Apply those indicators above on your trading chart, then observe:
- The HMA line is sloping toward the downside.
- The dynamic blue line is at the central (50) line or heading downside.
Entry
Mark the pattern near any resistance level, match these conditions above and open a sell position.
Stop loss
Place an SL above the recent swing high of your sell order.
Take profit
Close your sell position when the current bearish trend weakens or observe the indicators when:
- The HMA line starts to slop on the upside.
- The dynamic RSI line reaches the lower (20) line or below or may start coming upside after reaching that oversold level.
Pros and cons
| Pros | Cons |
| Generates good reversal signals by taking place on particular levels. | Opening trades depending on any single candle is not wise. |
| It is a typical pattern for many trading instruments. | Requires using other indicators to create complete trading strategies. |
| Define fine market context if you follow some next candles. | This pattern can fail due to fundamental events. |
Final thought
Finally, the candle is a potential reversal candle formation like Doji, Hammer, Hanging man, etc. Using this candle type, you can combine other technical indicators to make potentially profitable trading strategies. We suggest observing the indicator reading and the next candles before opening any position.
