Is there a pattern representing indecision about the future direction of the price? Yes, it’s called a spinning top. So, what does this pattern look like, and where on the chart can you find it?
When do spinning tops occur?
top spinning pattern 2If you’ve been trading traditional and crypto markets for long enough, then you probably know that sometimes neither sellers nor buyers gain the upper hand at the close of a trading time frame. These moments of indecision mean that during the trading period bulls were pushing the value of the asset up whereas the bears were pushing down, too.
As a result, the closing price came very near to the open at the end of the trading time frame. When you don’t know where the trend will go and wait for the confirmation, spinning tops start popping up on the chart here and there, which indicates a potential price reversal. This normally happens either on top or bottom of the chart.
What do spinning tops mean?
If you find this pattern at the bottom of the chart, it might mean that the bears are losing control. If it’s at the top, it may very well signal the change in the uptrend.
Are spinning tops easy to spot on the chart?
Yes, they are. Take a look at the picture down below. This candle’s short body is vertically centered in the middle and normally small. This is because the difference between the open and the close prices is insignificant.
As you can see, spinning tops are symmetrical, with upper and lower shadows of approximately equal length.
spinning top pattern
Source: TradingView XRP/ U.S. Dollar
While pinning faith to this simple yet beautiful pattern, don’t forget that just like any other candlestick pattern, this one also needs confirmation that will show if it’s the start of an uptrend or a downtrend.
This pattern is better combined with other technical analysis tools, for example, Parabolic SAR and MACD.
Isn’t spinning top the same as a doji?
No, dojis are different. They have small real bodies and long upper and lower shadows, because an open and close are virtually equal.
However, both patterns, the doji and spinning top, represent a certain level of traders’ indecision about the next price move.
doji
Source: TradingView LTC/ BTC
Spinning tops’ limitations
Even though spinning tops were designed to forecast reversals, it’s not always the case. They require confirmation, but sometimes confirmations can’t guarantee that the asset’s price will go in a certain direction.
If you want to use a spinning top, you should probably also go with other candlestick patterns, by utilizing extra technical analysis tools and trading strategies.
Key takeaways
Just like a night is followed by a day, and the name of TradeSanta is inevitably associated with crypto bots, professional traders have knowledge of different patterns in their arsenal.
Spinning tops occur in the moments of traders’ indecision and appear on the chart when neither sellers nor buyers gain the upper hand at the close of a trading time frame. As a result, the closing price comes very near to the open.
This pattern is symmetrical, with upper and lower shadows of approximately equal length and a short real body.
Depending on their positioning, spinning tops might mean that either bears or bulls lose control, but the trend reversal requires confirmation. However, even confirmation doesn’t always mean that the price will change.
That’s the reason why spinning tops are good when combined with other technical analysis options, such as MACD and Parabolic SAR.
Although spinning tops look somewhat like dojis that indicate indecision, too, the dojis are slightly different in shape, and with them, there is virtually no difference between the close and the open.
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Forex