Bearish Spinning Top: Definition, Indication, Example, and How It Works?

Spinning top candlesticks form when there is significant volatility in the market, but neither the buyers nor the sellers can gain a decisive advantage. During the trading session, prices move substantially up and down, creating long upper and lower shadows. However, by the close of the session, the opening and closing prices are close to each other, resulting in a small real body. This small body, flanked by long shadows, is the hallmark of the spinning top pattern.

While this indecision doesn’t guarantee a reversal, it often acts as a cautionary signal for traders who may be looking to enter or exit a position. Additionally, combining the spinning top with other technical analysis tools like moving averages or RSI enhances the reliability of the trading signals. These confirmation signals help traders make more informed decisions and manage risk effectively. The spinning top is a candlestick pattern that signals indecision between buyers and sellers and may indicate a possible trend reversal. It is another common and effective candlestick reversal pattern used by traders to find trading opportunities and market trends. Candlestick charts can reveal quite a bit of information about market trends, sentiment, momentum and volatility.

In the long run, the prices are always trending near the moving averages. The great depression of 1929 was reported as the most prolonged depression of the modern world. The great depression was triggered by a bearish market trend and was persistent for about 10 years. Many individuals purchased overinflated assets at prices higher than their absolute value. Such a rise caused companies to resort to excess production, leading to excess supply in the market. This caused the average price level to fall significantly, causing deflation, the effects of which penetrated the stock market as well.

Similarly, a spinning top candle at the bottom of a downtrend may indicate that buyers are gaining control. Bear factors are futile to make the market move in a single direction, resulting in market indecision. The components of a bearish spinning top will help in indicating that the price will fall likely and the sellers are back in control. The Spinning Top represents a tug-of-war where neither side gains ground, reflecting market indecision. This can often precede significant shifts in market direction as traders reassess their positions and the market consensus evolves.

How do you use Bearish Spinning Top in Trading?

However, a spinning top can signify a future price reversal if confirmed by the following candle. For successful trading, continuous learning and vigilance in pattern recognition are essential. Tools like Finviz screener and TradingView stock heatmap provide traders with critical data, complementing the insights from spinning top candlestick patterns.

This is represented as a red candlestick that opens above the previous green body and closes below its midpoint. The downtrend is considered extremely decisive if the wicks of the candles are short. Traders can enter a short position the next day if a bearish candle is formed and can place a stop-loss at the high of the second candle. Spinning top candlesticks are valuable tools for identifying potential trend reversals. When a spinning top appears after a strong uptrend or downtrend, it indicates market indecision and a possible shift in momentum.

As a neutral candlestick pattern, the spinning top can be formed in charts in different scenarios. This can be done by observing the price action after the spinning top candle forms. Look for a break above the candle’s high (bullish spinning top) or below the low (bearish spinning top) to confirm the direction of the next price movement. These were the best technical indicators in the bearish market to counter any bearish movement. These indicators will alert the investor or trader in advance of the upcoming trend and also confirm the trend reversal or changes in the ongoing trend.

In short, these candles show both price movement but also incorporate volume which determines the width of the candle. After the candlestick emerged, the stock had a lame push lower and then resumed the uptrend higher into the close. The Spinning Top pattern reflects a period of equilibrium between buyers and sellers, with neither party able to gain control. Place it beyond the spinning top candlestick pattern opposite side of the formation, accounting for the candle’s range and market volatility.

Traders can use other technical indicators and chart patterns to confirm the direction of the trend before entering a trade. Some traders use the high and low of the Spinning Top candle as potential buy or sell triggers, placing a stop loss order above or below the high or low, respectively. Another important event in the history of bearish terms in the stock market is the 2008 recession.

Trade Every Market in One Place

1. For me, I like to use pivot point levels and Fibonacci extensions to determine when to exit my position.
2. For example, suppose the spinning top is followed by a bearish candle, serving as a potential trend reversal for the ongoing uptrend and subsequently leading you to take a short position.
3. Fourth, using volume with price action is crucial in understanding the market context of the spinning top pattern.
4. India witnessed a fall in Sensex points by 1408 points on January 31, 2008.
5. If the followingcandlestick closes upwards, it increases the probability of the uptrendcontinuing.

The best way to avoid frequent errors is by having a risk management plan, especially while using the tools for technical analysis of a stock. Candlestick patterns also indicate overall indecisiveness in markets, so conservative traders can choose to stay away as there is no definite trend. Aggressive traders should also only make a move and bet on trend reversal by analyzing whether it is a bearish or bullish spinning top. The Bearish Reversal candlestick patterns are single or multiple candlestick patterns. Bearish Reversal candlestick patterns indicate that the ongoing trend is going to reverse to a downtrend.

This limitation highlights the importance of risk management strategies when trading with spinning tops. Integrating stop-loss orders and maintaining a healthy risk-to-reward ratio can help mitigate these risks. Below, we are going to show you the two types of spinning top patterns combined with Fibonacci support and resistance levels – bullish and bearish spinning top patterns. Again, a candle doesn’t always represent a potential trend reversal; it can also be a short-term breather of a bigger continuation pattern as in this example. Since the candlestick pattern shows neither a price target nor an exit plan, estimating how much you can earn from it is especially challenging.

1. Historical instances of spinning top patterns in major forex pairs provide valuable insights into their practical application.
2. However, a confirmation from the next candle is key to determine whether the prices will drop after the uptrend.
3. The next phase after a bearish spinning top pattern will be an uptrend, downtrend, or sideways trend.
4. The bulls sent the price sharply higher, and the bears sent the price lower, but in the end, the price closed near where it opened.
5. After all, if they were successful, the day would have resulted in a good blue candle and not really a spinning top.

What Does Bullish Mean?

In this article, I will discuss how to combine spinning tops with other candlestick formations and volume candles to pinpoint market reversals and continuation patterns. Before we dive into the details of the setups, I first want to ground you on the construct of a spinning top. Candlesticks with a spinning top are most effective when used in conjunction with other technical analysis methods. This means that this will lead to the creation of a small real body, as a 4-point move is not much. Here, the opening price is higher than the closing price, and a bearish spinning top occurs. In some cases, especially when a spinning top appears within an established range, it may indicate continuing market indecision.

One advantage of the bullish spinning top candlestick pattern is that it can provide traders with an early indication of a potential trend reversal in a downtrend. This can allow traders to enter a long position early in the uptrend, potentially maximizing profits. One drawback of the bullish spinning top is that it can also produce a false signal. The pattern is not always be followed by a significant uptrend, leading to a potential loss for traders. Traders utilize spinning top candlestick patterns as valuable indicators to make informed trading decisions. This distinctive pattern is a critical indicator of potential reversals or continuation in the market, depending on the context in which it appears.

A spinning top pattern generally displays almost equal wicks on both ends. This symmetry suggests that both buying and selling pressures were strong but eventually balanced out, leaving the market unchanged. Traders can manage risks effectively by integrating tools like the stochastic oscillator and setting stop-loss orders. Complementing this pattern with stop-loss orders and considering investment research’s independence and legal requirements in trading decisions is essential. HowToTrade.com helps traders of all levels learn how to trade the financial markets.