Japanese candlesticks are the basic building block of most technical analysis. That makes the ability to recognize different candlestick types a crucial trading skill.
First though, let’s start with a definition.
What Is a Spinning Top Candlestick?
A spinning top is a candlestick with a small body in the middle of long upper and lower shadows. It indicates a small difference between the open and close prices within a large trading range. Spinning tops are commonly seen during market indecision, reversals, consolidation, and peak volatility.
Unlike some other candlestick types, their name does not have a Japanese meaning. Instead, they are named for the way they look. In trading terms, a spinning top candle signals indecision.
A spinning top candlestick paints a picture of a crossroads. With a small body, the trading range (wick-to-wick) usually stands out most. On the chart, it looks like a dramatic price action tug-o-war with no clear winner. They send a message: “It could go either way.”
Technically, spinning tops should have wicks of equal length. It doesn’t matter which color the body is. In practical application though, “perfect” spinning tops are comparatively rare. If both wicks are much longer than the body and fairly equal, you can treat it like a spinning top.
If the body is negligible or non-existent, it would technically be a long-legged doji. However, there is no need to get hung up on the specific classification. The implications are generally the same either way.
That’s because context is always more important than exact criteria when it comes to trading candlesticks.
More on how to trade spinning top candles in a moment.
First, let’s illustrate how they are formed.
How Are Spinning Top Candles Formed?
Spinning tops give the impression of fierce back-and-forth price action.
That impression is generally correct.
Within the time period of the candle, price ended up near where it began. However, there is always more to the story.
A spinning top typically starts with a powerful move in one direction, then reverses to break through the open price and beyond, to then reverse again and close back near the open. It will often take various shapes before finally closing as a spinning top candlestick.
You’d need shorter timeframes to see a more complete picture.
That’s also why you should usually wait for confirmation. It’s not officially a spinning top until the candle closes. And it can be dangerous to make trades based on incomplete candles.
You can never be 100% sure how a candlestick will look at the end of the time period.
That’s one of the reasons it’s so important not to get too focused on any single candle.
Where Spinning Top Candlesticks Fit in the Chart Narrative
The markets are often characterized as a battle between the bulls and the bears.
Spinning tops indicate that momentum swung wildly but neither side was able to maintain control over the time period that candle represents. Obviously, no single candlestick can determine an entire trend. Still, doji that appear at the right time can have significant implications on future price action.
Be on the lookout for them during:
- Indecision – Spinning tops are more common when price can’t make up its mind which way it wants to go.
- Reversals – Reversal formations often include easy-to-spot candlesticks like spinning tops.
- Consolidation – During consolidation, spinning tops often set short-term support and resistance levels.
- Peak Volatility – When volatility is at its maximum, dramatic-looking candles like spinning tops appear more frequently.
They may also appear in certain types of candlestick patterns.
To become a successful trader, understanding candlesticks is a great place to start. But you should also learn how candlestick patterns and chart patterns work. Plus, you need to be able to recognize cycles, trends, and price levels. From there, you can begin to read the story in the charts.
Tools like chart markup and trading indicators can reveal even more. And once you’ve chosen your asset(s) and trading style, the full chart narrative truly comes into focus. The charts will basically speak to you at this point.
By looking at the history of the chart, you can identify how price action played out around prior spinning top candles (or patterns that included them). Moreover, you can compare historical structures in price and your other tools to current price action.
Now, you’re actually doing real technical analysis.
How To Trade Spinning Top Candles
You should never trade based on a single candlestick.
However, certain candle shapes may give you some trading ideas, especially given the right context. Spinning top candlesticks are one of those shapes.
In addition to the overall structure surrounding a spinning top, there are some other things worth paying attention to.
- Trading Volume – The greater the trading volume during any candlestick’s formation, the greater its potential implications on price action.
- Trading Range – The larger the distance from wick tip to wick tip, the more likely it is to break prior or establish new price levels.
- Price Formations – Spinning tops often appear at pivotal points of various price formations, such as double tops and double bottoms.
Generally, the fewer of these factors that are present, the less noteworthy the candle.
In order to form a complete trading strategy, you need to understand the basic math of trading, order types, and trading psychology. Even more importantly, you need to develop your own edge and learn risk management. And if you really want to take it all the way, look into options and trading automation.
Before you get there though, there’s still more to learn about the candles themselves.
Other Types of Candlesticks
The spinning top candlestick is but one of many candlestick types.
You should get familiar with all of the other ones too.
- Bearish Belt Hold
- Bullish Belt Hold
- Doji
- Dragonfly Doji
- Gravestone Doji
- Hammer
- Hanging Man
- Inverted Hammer
- Long Candle
- Long-Legged Doji
- Marubozu
- Shooting Star
Not all candlesticks shapes earn names—so you should probably check out the ones that do. Just keep in mind that it’s not necessarily about memorizing all of the ins-and-outs of each. It’s more about ingraining the principles of price action into your brain.
In fact, you’re free to forget all of the names as long as you can look at a candlestick and understand what it means.
Takeaways
To review:
Spinning top candlesticks are a type of candlestick that signals high levels of uncertainty. They tend to show up during market indecision, reversals, consolidation, and peak volatility. That means they can help you find winning trades.
Of course, there are other types of candlesticks that you should learn about. And even so, candlestick analysis alone is not enough to trade successfully.
Nonetheless, you’ve now added one more tool to your toolkit.
Have questions or more information to add? Contribute to the conversation in the comments below! Or, if you know someone who could benefit from this post, share it with them. You can also check out our Japanese Candlesticks Guide to improve your candlestick analysis skills.