A spinning top is a single-bar candlestick with a small real body (open and close are close together) and relatively long upper and lower shadows. The body sits roughly centered between the high and the low. The formation shows a tug-of-war between buyers and sellers that ends in little net price change for the period — a signal of indecision.
Why it matters
– Indicates market indecision: neither bulls nor bears gained control during the period.
– Context-dependent: when it appears inside a trading range it often confirms sideways action; when it appears after a strong trend it can warn of a possible reversal (but requires confirmation).
– Common and non‑decisive by itself: many spinning tops do not lead to meaningful reversals, so confirmation and complementary analysis are essential.
Key characteristics
– Small real body (color — bullish or bearish — is not critical).
– Long upper and lower shadows.
– Appears across timeframes (minute, hourly, daily, weekly); significance increases with higher timeframes.
– Often occurs in clusters when markets are calm or consolidating.
What a spinning top can tell you
– Within a trend: may signal that the trend is weakening. A spinning top at the top of an uptrend suggests bulls could be losing strength; at the bottom of a downtrend it suggests bears may be weakening.
– Within a range: typically confirmssideways action.
– Needs confirmation: the next candle(s) should show the direction (e.g., a strong bearish candle after a spinning top at an uptrend top) to treat it as a reversal signal.
Spinning top vs. doji
– Both indicate indecision.
– Doji: open and close are virtually identical (tiny or no body); often small shadows.
– Spinning top: has a small but visible body and relatively long upper and lower shadows.
– Both require confirmation from subsequent price action.
Limitations and practical cautions
– High frequency: spinning tops are common; many are false signals.
– No price target: the pattern does not provide an exit target or objective.
– Risk sizing: the full high-to-low of the candle can be large; placing stops based on extremes can mean large risk per trade.
– Reliance on confirmation: confirmation may come with delay and additional market risk.
– Best used with other tools: combine with indicators, support/resistance, trendlines, volume, and price action.
How traders use spinning tops — practical steps (scan, confirm, enter, manage)
1. Identify context
• Check the trend and structure: Is price in a strong uptrend, downtrend, or range? Higher timeframe context (daily/weekly) matters more for significance.
2. Spot the spinning top
• Confirm small real body centered between long upper and lower shadows. The candle can be slightly bullish or bearish — body size is small relative to recent candles.
3. Seek confirmation (mandatory for most traders)
• For a reversal after an uptrend: wait for a bearish confirmation such as a candle that closes below the spinning top’s low or a bearish engulfing/large red candle with increased volume.
• For a reversal after a downtrend: wait for a bullish confirmation such as a bullish close above the spinning top’s high or a strong green candle with volume.
• For a range: confirm that subsequent candles remain inside the range if you expect continuation, or watch for a decisive breakout if you expect a breakout.
4. Entry rules (examples)
• Conservative: enter when the confirmation candle closes and price is moving in the expected direction.
• Aggressive: enter on a break below/above the spinning top’s low/high with confirmation from momentum indicators.
5. Stop placement
• Common method: place stop above the high (for short entries) or below the low (for long entries) of the spinning top or above/below the confirmation candle’s extreme.
• Alternative: use ATR-based buffer (e.g., stop = extreme ± 1–2 ATR) to avoid being stopped by noise.
6. Position sizing
• Use risk-per-trade rules (e.g., 0.5–2% of account equity). Determine position size from risk distance (entry to stop) and acceptable dollar risk.
7. Targets and exits
• Use nearby support/resistance, a measured move based on structure, or risk-reward multiples (e.g., 1.5–3× risk).
• Trail stops as price moves in favor, or use indicators (moving averages, VWAP) to manage exit.
8. Validate with tools
• Combine spinning top signals with indicators like RSI (look for divergence or oversold/overbought), MACD cross/turn, moving averages, volume spikes, or Fibonacci levels.
9. Backtest and journal
• Backtest the pattern on your market and timeframe. Log outcomes to learn which contexts make the pattern more reliable for your setups.
Example setups
– Reversal example (bearish): daily uptrend → spinning top at recent high → next day a strong bearish candle closes below the spinning top low with higher volume → enter short on the close or on a break of the spinning top low → stop above the spinning top high → target nearest support or set a multiple of risk.
– Range example: repeated spinning tops within a horizontal band → expect continuation of range; trade bounces off range boundaries rather than expecting trend reversals.
Indicator combinations that improve reliability
– Volume: confirmation candle accompanied by increased volume is more convincing.
– RSI: bearish reversal confirmed if RSI shows loss of momentum or bearish divergence; bullish reversal if RSI turns up or shows bullish divergence.
– MACD: a bearish MACD crossover or drop in histogram supports a downside confirmation; the opposite supports an upside confirmation.
– Moving averages: spinning top at/near a major moving average (50/200 MA) can add weight to a reversal or bounce thesis.
Practical checklist before acting on a spinning top
– Is the spinning top on a higher timeframe (daily/weekly) or only on intraday? (Higher timeframes are more meaningful.)
– What is the trend context? (trend continuation, reversal, or range?)
– Is there a clear confirmation candle with volume?
– Is risk manageable given stop and account size?
– Are there other technical factors supporting the trade (support/resistance, indicators, news)?
Risk examples and position-sizing formula
– Example formula: Position size = (Account risk per trade in $) / (Stop distance in $)
• If you risk 1% of a $50,000 account = $500, and stop distance from entry to stop = $1.00, you buy/sell 500 shares.
– Use ATR to estimate realistic stop distances and avoid tiny stops that get hit by normal noise.
Backtesting & sample parameters to test
– Timeframe: daily and 4‑hour for swing trades; 5–60 minute for intraday setups.
– Filters to test: trend filter (MA slope), minimum size of shadows relative to recent candles, confirmation candle type (close below/above low/high), minimal volume threshold.
– Performance metrics: win rate, average win/loss, maximum drawdown, expectancy.
Common pitfalls
– Acting on a spinning top without confirmation.
– Using spinning tops as standalone signals without context or risk controls.
– Using extreme stop distances relative to potential reward.
– Ignoring macro or fundamental news that can invalidate technical patterns.
The bottom line
A spinning top is a visual sign of indecision — useful as an early warning that a trend may be pausing or reversing, or that a range may continue. Its value lies in context and confirmation: treat it as a cautionary signal and wait for subsequent price action and supporting indicators before entering a trade. Always combine pattern recognition with clear risk management, position sizing, and a tested plan.
Source
Investopedia — “Spinning Top,” Laura Porter.
(Information here is educational and not individualized investment advice. Test any strategy on historical data and use prudent risk management.)
Additional sections and examples
How to Build a Spinning Top–Based Trading Plan
A spinning top candlestick alone rarely justifies a trade. Use a clear step-by-step plan that defines how you will confirm, enter, manage risk, and exit trades.
1) Define context
– Identify the prevailing structure: uptrend, downtrend, or range. Spinning tops in trends can hint at reversals; in ranges they more often indicateindecision.
– Check nearby support and resistance levels. Spinning tops that form at significant horizontal support/resistance, trendlines, or moving averages carry more informational weight.
2) Confirm the signal
– Wait for the next candle (confirmation candle). For a potential bearish reversal after an uptrend, confirmation is typically a bearish candle closing below the spinning top’s close (or below a nearby support). For a bullish reversal after a downtrend, look for a bullish confirmation candle closing above.
– Optionally require additional indicator confirmation (see section below).
3) Define entry
– Conservative: enter after a confirmed break (e.g., sell when price closes below confirmation candle low).
– Aggressive: enter when confirmation candle begins to move in the expected direction (e.g., short when price dips below the spinning top’s low).
4) Set stop-loss and position size
– Place stop loss above the spinner’s high (for shorts) or below its low (for longs) or above/below the confirmation candle depending on risk appetite.
– Calculate position size so that the risk per trade (distance to stop × position size) matches your risk tolerance (e.g., 0.5–2% of account).
5) Plan exits and take profits
– Use a risk:reward ratio (e.g., 1:2 or better) to set profit targets.
– Consider multiple exits: scale out partial position at first target, move stop to breakeven, then let runner finish at longer-term support/resistance or a moving-average confluence.
6) Manage the trade
– If the price invalidates the pattern (e.g., breaks strongly the opposite direction), exit quickly.
– Trail your stop based on structure (higher lows/current swing low for longs; lower highs/current swing high for shorts).
Practical examples (hypothetical trades)
Example A — Bearish reversal after an uptrend
– Context: Stock has risen from $40 to $58 over several sessions. A spinning top forms at $58 with long upper and lower wicks and a small real body centered in the candle.
– Confirmation: Next candle is a strong bearish candle that closes at $55.
– Trade plan:
• Entry: Short at $54.80 (on a break below the confirmation candle’s low).
• Stop-loss: $59.00 (above the spinning top’s high).
• Target: $48.00 (near previous support) — gives ~1.6:1 reward:risk.
• Position sizing: Risk per share = $59 − $54.80 = $4.20. For 1% account risk on $100,000 = $1,000 maximum; shares = 1,000 / 4.20 ≈ 238 shares.
Example B — Bullish reversal after a downtrend
– Context: Forex pair fell from 1.3200 to 1.2900. A spinning top forms around 1.2900 at a horizontal support level.
– Confirmation: Next candle is a bullish candle closing at 1.2950.
– Trade plan:
• Entry: Buy at 1.2940 (break above confirmation candle).
• Stop-loss: 1.2870 (below spinning top low).
• Target: 1.3120 (prior consolidation top).
Example C — Range continuation
– Context: Index forming a clear trading range between 10,000–10,500. A spinning top forms near 10,200 in the middle of the range.
– Interpretation: This spinning top is likely confirming indecision — expect continuation of the range unless a strong breakout occurs. Prefer trading the edges of the range rather than fade based on the spinning top.
Combining spinning tops with technical indicators
Use indicators to reduce false signals and improve timing.
• Moving averages: A spinning top near a major moving average (50- or 200-period) can mark a potential rejection or support. Confirmation candle closing beyond the MA is useful.
– RSI (Relative Strength Index): If a spinning top appears at overbought/oversold RSI extremes, the chance of a reversal increases.
– MACD: A MACD bullish/bearish crossover in conjunction with a spinning top encourages confidence in a breakout.
– Volume: Higher-than-average volume on the confirmation candle strengthens the signal. A spinning top with low volume and weak confirmation is less reliable.
– Support & resistance and trendlines: Price reaction to these areas helps prioritize spinning tops that matter.
Timeframes and multiple-timeframe analysis
– Spinning tops occur on all timeframes. Higher-timeframe spinning tops (daily, weekly) generally carry more weight than intraday ones.
– Use multiple-timeframe analysis: A spinning top on the daily chart aligned with a clear signal on the 4-hour chart offers stronger conviction than a single small-timeframe pattern.
Backtesting and statistics
– Before trading live, backtest spinning top strategies on historical data for your chosen market and timeframe.
– Track metrics: win rate, average win/loss, profit factor, maximum drawdown, and expectancy (average return per trade).
– Because spinning tops are common, expect many “noise” signals — your edge comes from filtering and disciplined trade management.
Limitations and common pitfalls
– Frequency of pattern: Spinning tops are common and often inconsequential by themselves.
– False confirmations: Even with a confirmation candle, the move can fail; always use risk management.
– Wide high-low range: The long wicks can make stop placement and position sizing challenging if the high-low range is large.
– No inherent price target: Candlestick patterns do not provide price objectives; integrate them with other tools for exits.
– Psychological bias: Traders may overinterpret a single spinning top and take poorly planned positions.
Practical trading checklist for a spinning top setup
1. Identify the spinning top and record its high, low, open, and close.
2. Confirm the context (trend/range and nearby support/resistance).
3. Wait for the next candle; determine type and direction for confirmation.
4. Check at least one indicator (RSI/MACD/volume/MA) for alignment.
5. Compute stop distance and position size based on risk tolerance.
6. Enter per plan (on confirmation or on break of confirmation candle).
7. Manage trade using pre-defined rules and exit plan.
Advanced considerations
– Multiple spinning tops in a row: Several consecutive spinning tops can indicate prolonged consolidation; consider range strategies or wait for a breakout.
– Candlestick clusters: A spinning top that appears as part of a larger reversal cluster (e.g., with bearish engulfing after) is stronger.
– News and events: Avoid relying on small candlestick patterns around major news releases (earnings, economic data) as volatility can invalidate patterns.
Concluding summary
A spinning top candlestick is a useful visual cue that signals market indecision: bulls and bears push price in opposite directions but the close remains near the open. It carries potential meaning when it appears at key structural levels or after extended trends, where it can precede reversals or confirmsideways movement. However, spinning tops are common and often noisy, so treat them as part of a broader toolkit rather than a standalone trading signal. Always seek confirmation, combine with technical indicators or support/resistance, backtest your rules, and manage risk carefully with stop-losses and proper position sizing. When used within a disciplined plan, spinning tops can help time entries and avoid chasing moves that lack conviction.
Sources and further reading
– Investopedia — Spinning Top (Laura Porter)
– Steve Nison — Japanese Candlestick Charting Techniques (classic reference on candlesticks)
– Your own backtests and broker platform documentation for execution specifics