They also appear very frequently in a chart, which means that it’s important to get a wider context before trading them. Besides that, the spinning top shows the current trend weakness. If traders pot a spinning top, they should find other indicators to decide the context and see if they’re indicative of trend reversal or neutrality. In this example, we see indecision, which signals more sideways movement. It’s especially in case the spinning top happens in a chronic range. In addition to that, this could also be an indicator of a probable price reversal if the price declines or advances.
- It’s crucial to understand regarding the Spinning Top Candlestick that the confirmation results from the following candle.
- A spinning top can have a close above or below the open, but the two prices are always close together.
- Ideally, the entry is on the break lower as the second candle forms and surpasses the Spinning Top body and wick.
- Spinning tops within trends may be reversals signals, but the candle that follows needs to confirm.
- In some cases, they’re both used to alert the reversal after a solid price move.
Bulls were defending this level heavily, while bears were trying to push it down. When you find a Gravestone Doji in an uptrend, what is it telling you? If price is being pushed higher in the trend only to reverse on itself, that is weakness, right? It is the overall trend and price action that will help you decide which direction to trade a doji candle and how to best use it to buy/sell stocks.
More Strategies For Trading Indecision doji Candles
Both types of candlesticks rely heavily on confirmation. A strong move after the spinning top or doji tells more about the new potential price direction than the spinning top or doji itself. Spinning tops are a common candlestick pattern, which means they work best in conjunction with other forms of technical analysis. Indicators or other forms of analysis, such as identifying support and resistance, may aid in making decisions based on candlestick patterns. The spinning top candlestick is a pattern relatively different from most of these candles because of where it forms and what it tells traders.
Yet, to the surprise of the bears, the downward momentum is stopped and reversed. In short, for a bullish Spinning Top, it has to open, move lower, rally, and then close green. Like the Gravestone Doji, you want to wait for a nice close to confirm the reversal. In this instance, we might weight for the next candle, or the second thereafter to break higher.
Candlestick Patterns Explained [Plus Free Cheat Sheet]
Recently, we discussed the general history of candlesticks and their patterns in a prior post. We also have a great tutorial on the most reliable bullish patterns. It can be a reversal or a continuation, though usually thought of as a reversal.
- A spinning top is a candlestick pattern that has a short real body that’s vertically centered between long upper and lower shadows.
- Spinning top candlesticks are common, which means many of the patterns witnessed will be inconsequential.
- On the other hand, the candlestick double-spinning top pattern refers to a continuation of the previous trend.
- The Dragonfly Doji is essentially a Hammer Candle, but with a narrower body.
For example, suppose that a stock you’re watching is forming a double bottom, which suggests that a bullish reversal may occur. You may look for a spinning top at the second bottom to confirm that the reversal is likely to occur. If there’s a bearish candlestick instead, you may not be so confident. Spinning tops aren’t a very reliable technical indicator in isolation. According to Bulkowski, spinning tops predict a reversal roughly 50 percent of the time — not very helpful.
The Spinning Top Candlestick and Trend Indecision
As an indecision candlestick pattern, it has all the same qualities we have mentioned for the Gravestone Doji. The Dragonfly Doji is essentially a Hammer Candle, but with a narrower body. It can also be a bullish or bearish doji candle, but is considered the opposite pattern to the Gravestone Doji. But overall, the big picture is that there was a lot of buying and selling going on.
However, we are surprised when the price begins to reverse, culminating in a bullish Dragonfly Doji pattern. As the candle forms, it pushes higher, only to find exhaustion at the highs. Consequently the price collapses on itself and closes where it started. Have a look at the chart below, where the dojis appears in a downtrend indicating indecision in the market before the next big move. The Dojis have similar implications as the spinning top. Whatever we learnt for spinning tops applies to Dojis as well.
Bullish and Bearish spinning top
Stops can be set in the body of the Dragonfly Doji or lower depending on risk tolerance. We call it indecision because we are at a crossroads. Selling pressure comes in, creates a long tail/wick, then buyers show up to raise the price of the stock. In short, the key takeaway is that there is no decisive close at the highs, or the lows.