A spinning top is a single candle pattern which appears on a trading chart fairly regularly. It is plotted by a candle whose open and close are within a short distance from each other but the wicks in both directions are much longer. To fully understand how to spot a spinning top and what to do with this information, it’s first advisable to know how to read a candlestick chart.
What is a Spinning Top?
A spinning top is a candlestick signal which is defined by a short candle body which is vertically centered between two long wicks, both up and down. The pattern suggests that during this period, neither bulls nor bears could get the upper hand. Essentially, a spinning top is like a combination of both a dragonfly doji and a gravestone doji and implies a moment of market indecision. The long upper wick shows that the bulls managed to push the price up briefly and the lower shadow shows the bears fighting the price lower but, in the end, neither side made much of an impact. Because a spinning top is a commonly occurring signal, it is unwise to trade on that alone.
When can I trade on a Spinning Top?
If a spinning top appears during a period of consolidation, it’s likely that this sideways chop will continue. In this situation, the candle is best left ignored as it doesn’t imply a move in either direction. A spinning top which appears during an upward trend could signal a trend reversal. The long downward wick suggests that the upward momentum may be running out of steam so it may be a sign not to jump into a long position just yet. If a spinning top occurs during a downward trend, watch out for a potential reversal to a new, bullish upward movement.
Again, it is advisable not to trade based solely upon the appearance of a spinning top given that they occur so frequently. Using it as confirmation on another signal such as a cup and handle or a bull flag is the smartest move. The cryptocurrency markets are notoriously volatile and while that does mean that profits can be huge, it also means that the price action is unpredictable and it’s very easy to get caught out with false signals.
A trading signal is only a suggestion of what might happen. There is no “crystal ball” trading pattern which will profit 100% of the time. If it was that easy, everyone would be doing it. In trading, there are winners and losers and to be a consistent winner, you have to be smart. Learn all of the telling signs including what patterns to look for within the candles along with how to read the most relied-upon indicators to give you the upper hand. There are traders who are decades into their careers and they still have losing days. Finally, always remember the most important rule in trading: NEVER put in more than you can afford to lose!