Spinning Top and Doji How to Interpret and Navigating Market Uncertainty

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    11. Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals
    12. Spinning Top and Doji How to Interpret and Navigating Market Uncertainty
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Marketopedia / Technical Analysis / Spinning Top and Doji How to Interpret and Navigating Market Uncertainty

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    Spinning tops in an uptrend

    The chart below can help us make an inference on the implications of a spinning top. Whether in an uptrend or a downtrend, this pattern will appear similar — but there is a slight distinction we should observe.

    An observable market trend implies that bulls have been dominant in recent trading sessions. Nevertheless, the recent presence of spinning tops presents a tricky situation.

    1. The bulls no longer hold sway; the charts would not show spinning tops if they did.
    1. The bears have ventured into the markets via the formation of spinning tops, though their entrance has so far proven unsuccessful. Nonetheless, they were granted access by the bulls.

    In evaluating the information above, it is important to consider the implications and how your company can gain a competitive edge in today’s market.

    1. The spinning top indicates that neither the bulls nor the bears have the upper hand in the market, suggesting a state of uncertainty.
    1. Taking the aforementioned data into account while considering the relevance of a bullish trend, two points become evident…
    1. The bulls may be taking a pause to secure their gains before pushing the market higher.
    1. Therefore, the bulls may be exhausted and could possibly cede to the bears. Subsequently, a correction may be on the horizon.
    1. The likelihood of either one happening is equivalent; that is, 50%.

    Given that, what course of action do you take? Both scenarios have the same likelihood of occurring, so how do you position yourself? In this case, it is best to get ready for both eventualities!

    Assuming you had purchased the stock prior to the surge, this could be your opportunity to gain some returns. Don’t cash in on all of them though; if you have 500 shares, consider profiting from half of them or 250 shares. After taking this action, two scenarios arise:

    1. When the bears make their appearance, you have the opportunity to book 50% profits at a higher price. You may even consider pocketing the remaining 50%, as your selling price will be greater than the current market value.
    1. The bulls are back in the market, and it looks like the rally is continuing. Luckily, you haven’t had to exit completely, as half of your portfolio remains invested.

    The position you adopt can be an effective tool to help you achieve both desired outcomes.

    This chart illustrates an uptrend, marked by spinning tops, which has generated an impressive rally. By investing 50%, you can take advantage of this boom.

    In conclusion, the spinning top candle suggests a lack of clarity and reliability in the market with the potential for a move in either direction. Until more clarity is achieved, traders ought to exercise caution and maintain smaller position sizes.

    The Dojis

    Doji and spinning tops are alike except that they both lack a real body; their opening and closing prices being equivalent. They provide a valuable indication of the market trends and are a significant candlestick pattern.

    The classic definition of a Doji is one with a nominal real body, where the open and close prices are near indistinguishable. The length of the upper and lower wicks are not restricted.

    Despite its thin body, the candle can be seen as a Doji if it adheres to the second rule of ‘flexibility, verification, and quantification’.

    It’s clear that the hue of the candle is inconsequential when discussing a real thin body. What stands out, in this case, is simply how near to one another the opening and closing prices were.

    Dojis and spinning tops have more or less the same implications. They are both indicative of indecision in the market and often appear clustered together.

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