What is Spinning Top Candlestick?
370 reads · Last updated: December 5, 2024
A spinning top is a candlestick pattern with a short real body that's vertically centered between long upper and lower shadows. The candlestick pattern represents indecision about the future direction of the asset. It means that neither buyers nor sellers could gain the upper hand.A candlestick pattern forms when the buyers push the price up during a given time period, and the sellers push the price down during the same time period, but ultimately the closing price ended up very close to the open. After a strong price advance or decline, spinning tops can signal a potential price reversal if the candle that follows confirms. A spinning top can have a close above or below the open, but the two prices are always close together.
Definition
A spinning top candlestick is a type of candlestick pattern where a short body is centered between long upper and lower shadows. This candlestick pattern represents indecision about the future direction of an asset. It indicates that neither buyers nor sellers can gain the upper hand. After a strong price rise or fall, if confirmed by subsequent candles, a spinning top can signal a potential price reversal. The closing price of a spinning top can be higher or lower than the opening price, but the two prices are always very close.
Origin
The spinning top candlestick originates from Japanese candlestick charting techniques, which were first developed by Japanese rice traders in the 18th century to analyze rice market price trends. Over time, this technique was introduced to Western financial markets and became an essential tool in technical analysis.
Categories and Features
Spinning top candlesticks are mainly divided into two categories: bullish spinning tops and bearish spinning tops. A bullish spinning top typically appears at the end of a downtrend, suggesting a possible upward price reversal. A bearish spinning top appears at the end of an uptrend, indicating a potential downward price reversal. Its main features are a short body and long shadows, reflecting market uncertainty.
Case Studies
In 2018, Tesla's stock, after a period of decline, showed a bullish spinning top candlestick, followed by a price rebound, confirming the reversal signal of this pattern. Similarly, in 2020, Apple's stock, after a continuous rise, displayed a bearish spinning top candlestick, followed by a price correction, demonstrating the warning function of this pattern.
Common Issues
Investors often face the issue of relying too heavily on a single candlestick pattern, neglecting the overall market trend and the integration with other technical indicators. Additionally, spinning top candlesticks are not always accurate reversal signals and should be confirmed with other analytical tools.
