Candlesticks Charts & Patterns
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The next candlestick pattern that we will learn is a Spinning top. It can be either bullish or bearish. Let's see how they are formed?
What is a bullish and bearish spinning top candlestick?
A spinning top is a single candlestick pattern which represents indecision about the future price movement. This candlestick pattern has a short real body with long upper and lower shadows of almost equal lengths. A small real body means that the open price and close price are close to each other.
For instance, if the open price is ₹320, and the closing price is ₹324, then this will lead to the creation of a small real body as a 4-point move is not much. As the open and close prices are near to each other, the colour of the candle does not matter.
What is the psychology behind the pattern?
A spinning top is an indecisive candle and explains high volatility and a tough fight between the bulls and the bears. It is formed when the bulls send the price higher than the opening price, and the bears then push it back down before the market closes, or vice versa. If a spinning top is formed, it means that the market has explored upward and downward options but then settles at more or less the same opening price – resulting in no meaningful change. If it is formed after a large uptrend, accompanied by high volumes, there are high possibility of a potential reversal and if the spinning top is seen at the bottom of a downtrend, it could mean that a bullish reversal might happen.
Confirmation of this candlestick pattern occurs when the next candle. If after an uptrend, a spinning top is formed, the next candle closing below the low of the spinning top candle will confirm a possible bearish reversal. If after a downtrend trend, a spinning top is formed, the next candle closing above the high of the spinning top candle will confirm a possible bullish reversal. Volumes must be kept in mind to take any action. The spinning top candles should be accompanied with high volumes. Always consider other patterns and indicators, to confirm the signal, and make sure that you do not deviate from your trading plan and risk management strategy.