Trade the Spinning Top Candlestick Pattern in Crypto: Signals, Examples and Strategy

How to Trade The Spinning Top Candlestick Pattern in Crypto: Signals, Examples, and Strategy. A spinning top is a candlestick chart that has a tiny body and lengthy upper and lower shadows (wicks) that are approximately identical. It is an indication of market indecision, that is, neither the buyer nor the seller was able to dominate the market at that time. The trend is observed during every period and on all assets, but it is especially significant in crypto markets where the indecision candles gain a new significance due to volatility. A spinning top is not much to tell you. It is not a direction, but a warning sign. It is the location of the appearance and the following words that are important. The story of a spinning top at the end of a powerful uptrend is very different than the one at the center of a sideways range. Signal is the context. The signal is only the candle. This guide dissects the process of determining spinning tops, which they represent in various circumstances in a trend, and how to create a practical trading strategy around them. What Does a Spinning Top Candlestick resemble? The characteristic features are simple. The body is small, and is placed in the middle of the total range of the candle. The upper wick stretches up high above the body. The bottom wick continues at about the same length below. The colour of the body (green or red) is not really very important as the little body itself informs you that the open and close were almost the same in any direction. Imagine it in this manner: price had moved significantly higher (forming the upper wick) and significantly lower (forming the lower wick) and nearly at the same point as it is at the beginning of the trading period. The two sides went at it and neither one emerged victorious. It is the tug-of-war that makes the pattern important. Components of a Spinning Top Component What It Shows What to Look For Small body Open and close are near each other Body must not be above 1/3 total candle range. Long upper wick Buyers had increased price, but lost control. At least 2x the body length Long lower wick Vendors forced the price down but lost control. Approximately equal to upper wick length. Body colour Minor bias in favour of buyers (green) or sellers (red). No big determinant of interpretation. What is the difference between spinning top and doji? This point is most frequently confusing. The two patterns are indications of indecision, but they do not imply each other. A doji is practically a bodyless thing. The open and close are at the very same price, or within a hair-breadth of it, or so near that the body is no more than a thin line. A spinning top possesses a little body. The length of the wicks in both designs are long and the spinning top indicates that there was a small but still insignificant advantage to one side. Spinning Top vs Doji Feature Spinning Top Doji Body size Small but visible None or near-zero Signal strength Moderate indecision Strong indecision Reversal reliability Needs confirmation A little heavier, but must be checked. Frequency Very common Less common In fact, the difference is not so significant as traders believe. Both trends are telling you one thing: the market is yet to be decided. The trading model of the two is almost similar. Give a second confirmation before taking action. What a Spinning Top Means at Various Stages in a Trend. After a Strong Uptrend Here lies the interest of spinning tops. When price has been steadily increasing and then a spinning top form is observed, then it is an indication that buyers are losing momentum. The trend is facing as much opposition on the sellers side as the upward pressure that was fueling it. This does not imply that the trend has ended. It indicates that the trend is taking a break and one may reverse back in case the next candle supports it by having a bearish closure. Following a Powerful Downward trend. The mirror image. A top after a long decline shows that the selling pressure is dying off. Buyers are intervening to a level of matching the sellers. Again, this is not an automatic reversal signal. The following candle must close bullish before you can consider it as a possible bottom. In a Sideways Range Spin tops in the midst of a range are nothing but noise. The market is already undecided and a candle that shows that the undecision is not contributing much is not necessary. The majority of traders who are experienced do not pay attention to spinning tops that are found within the consolidation areas. They will not listen until the trend appears following a definite direction-move. Trading the Spinning Top Pattern: Trade by Trade. Step 1: Find the Trend Context. Look to the left on the chart before you do anything with a spinning top. Does the pattern follow a distinct trend of at least 5-7 candles in a single direction? When yes it is worth listening to. When it is chopping sideways in the market, avoid it. Step 2: Waiting until Confirmation Candle. This is what makes the difference between profitable pattern traders and those who are chopped up. Always trade not on the spinning top. Wait till the next candle closes. Should the spinning top occur following an uptrend, then you require a bearish confirmation candle (a solid red candle closing below the low of the spinning top). In case it followed a falling pattern, you require a bullish confirmation candle (a green candle that closes above the high of the spinning top). Step 3: Set Your Entry Enter on the open of the candle after the confirmation candle. And two candles beyond the spinning top itself. This is cumbersome, and you will sometimes miss the best entry, yet it winnows out a huge amount of false signals which would otherwise have cost you money. Step 4: Add Your Stop-Loss. In a bearish reversal trade (selling post- uptrend spinning top), place your stop-loss just above the high of the spinning top candle. In a bullish reversal trade (buying when the market has been in a down trend spinning top), place it slightly lower than the low of the spinning top. The highest point that the opposing side exhibited strength was at the spinning top where the wick was extreme. When price goes beyond this point, you are in the wrong thesis and you wish to move out. Step 5: Figure out Your Target. One of the most popular strategies is to attack the closest major support or resistance level towards your trade. Alternatively, take 2:1 ratio of reward to risk as your baseline. When your stop-loss is 50 different than your entry then you should target a minimum profit of 100. By doing so, you will just have to be correct on 40% of your trades to remain profitable in the long run. Errors that Traders commit with Spinning Tops. Buying and selling the pattern alone. A spinning top in itself signifies nothing what can be done. In the absence of trend context, and a confirm candle, you are speculating. Ignoring timeframe. The spinning top on a 1 minute chart is mostly noise. The trend proves to be more convincing in 4-hour and daily charts with each candle indicating a significant quantity of trading activity and opinion of the participants. Mistaking indecisiveness with reversal. A spinning top indicates that market is undecided. It does not state that there is a reversal in the market. There are a lot of spinning tops in the middle of the trend, the market halts after one candle followed by the market moving in the same direction. Specifically to filter these out is the confirmation candle. Skipping the stop-loss. A spinning top reversal trade is very likely to go wrong; it can go wrong very quickly since you are going against the previous trend. In the absence of a stop-loss, a planned reversal bet becomes an indefinite loss. Use of the Spinning Top together with Other Indicators. The spinning top is most useful as an element of a larger set of tools, rather than as a single signal. Some combinations that are real value adding: Spinning top + RSI divergence. When RSI is indicating bearish divergence (price higher highs, RSI lower highs) and a spinning top is at the top, the reversal indicator is much stronger. Bullish setups can be applied in the same logic. Spinning top + volume drop. A spinning top with decreasing volume than the previous trend candles is a confirmation that there is a drying up of participation. There are not so many traders ready to break the trend. That is a greater signal of indecision than a rotating top of mean volume. Top of spinning at the important support or resistance. When the pattern is created at the level that has historically led to price bouncing or rejecting, confluence occurs. The support/resistance level offers the context, the spinning top offers the timing and the confirmation candle offers the trigger. Candlestick Patterns on XXKK. The trading interface of XXKK can be provided with complete candlestick charts with customizable timeframes ranging between 1-minute down to weekly candles. Spinning tops and dojis are also patterns that you can find directly on the platform, without having to use third-party charting software. The charts also support overlay indicators such as the RSI and VWAP meaning that you can use the combination strategies discussed above on the same view. To traders still learning how to read candles, it is feasible to begin with the 4-hour or daily chart on a liquid pair, such as BTC/USDT on XXKK. The trends are purer on bigger time frames, the indicators are more credible, and you have additional time to evaluate the arrangement prior to getting into a trade. Frequently Asked Questions Is a spinning top bullish or bearish? Not either, as such. It is an apolitical sign of indecision. It turns bullish or bearish depending on its location in a trend and the confirmation candle. It is bullish after a down movement with a bullish confirmation. It is bearish after an uptrend which is confirmed by bears. What is the reliability of spinning top pattern? Not very, as a standalone signal. Research on the reliability of candlestick patterns has always indicated that the candlestick patterns require further confirmation before they can be traded. The spinning top is a valuable tool when used in a more comprehensive strategy in conjunction with a trend context, volume analysis, and a confirmation candle. Which time period is most suitable to spin top trading? The 4-hour and daily charts provide the most optimal signal quality and frequency. Smaller time samples such as 15-minute and 1-hour give more spinning tops, although the proportion of these tops is significantly greater than that of noise. Weekly charts are good and have very few setups. Is it possible to scalp with spinning tops? You may, but the bogus signal rate on short periods is so great that the majority of scalawags choose momentum-based entries as opposed to candlestick formations. When using them to scalp, you can use 5-minute charts on high-volume pairs and a volume spike on the confirmation candle as an added filter. Feel like testing your reading candlestick patterns? Feel like testing your reading candlestick patterns? Create a free account on XXKK, open the BTC/USDT daily chart, and begin to recognize spinning tops at trend extremes. Use the confirmation system in this guide and monitor the outcomes.