Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals

  1. Technical Analysis
    1. How Technical Analysis Can Help You Make Informed Decisions in Mastering Stock Trading
    2. Technical Analysis Setting Realistic Expectations
    3. Introduction to Technical Analysis and Assumptions
    4. Technical analysis for Profitable Trades Analyzing Open, High, Low, and Close
    5. Candlestick Charts How Line and Bar chart Enhance Market Analysis
    6. Japanese Candlesticks History, Anatomy From Ancient Japan to Global Trading Phenomenon
    7. Time Frames in Technical Analysis Unlocking the Power of Choosing the Right Interval for Successful Trading strategy
    8. Candlestick Patterns How to Identify and Interpret Trading Signals
    9. Marubozu and Bullish Marubozu Understanding What is Essential Single Candlestick Patterns for Traders
    10. Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns
    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
    13. Paper umbrella and hammer candlestick pattern Unlock Profitable Trades
    14. Hanging man candlestick pattern Profitable share market trading Strategies
    15. Shooting Star Candlestick Pattern Boost Your Trading Success Guide
    16. Engulfing Patterns and Bullish Engulfing Signals Unlock Trading Opportunities
    17. Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns
    18. Multiple Candlestick Patterns Insights and Strategies Boost Your Trading
    19. Bullish Harami Candlestick Pattern for Trend Reversal Strategies
    20. Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence
    21. Morning Star Candlestick Pattern and Gap Analysis To Maximise Your Profits
    22. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success
    23. Support and Resistance Basics A Comprehensive Guide to Setting Targets and Navigate the Markets with Confidence
    24. Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities
    25. Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation
    26. Volume Trends How to Leverage for Successful Trading Strategy
    27. Volume Analysis A Key Checklist for Successful Stock Trading
    28. Moving Averages A Comprehensive Guide for Trend Analysis in Stock Trading
    29. How to Use Moving Averages for Profitable Trading Strategy and Potential Opportunities
    30. Moving Average Crossover Boost Your Trading Success with A Reliable Strategy
    31. Technical indicators How to Use Technical Tools for Better Decision-Making Unlocking the Power of Trading
    32. Relative Strength Index RSI Analysing Overbought and Oversold Signals to Boost Your Trading Strategy
    33. MACD How to Interpret and Utilize Moving Average Convergence and Divergence for Profitable Trading
    34. Bollinger Bands The Power of Indicators in Trading and checklist
    35. Fibonacci Retracements Unravelling the Power in Stock Markets
    36. Mastering Fibonacci Retracement A Step-by-Step Guide for Effective Trading
    37. Dow Theory Decoding Unveiling the Principles of Technical Analysis
    38. Dow Theory Patterns Unlocking Trading Opportunities with Double and Triple Formations
    39. Trading Range Explained chart indicator example strategy Profit from Market Ranges
    40. Flag Pattern and Range Breakout How to Capitalise Trading Beyond Boundaries
    41. Risk reward ratio Understanding RRR in Dow Theory
    42. Technical Analysis Tools for Traders Charting Software Guide Enhance Your Trading
    43. How to Select Stocks for Trading Success and Building Your Opportunity Universe
    44. Short Term Trading Unleashing the Power of Scalping Strategies
    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
Marketopedia / Technical Analysis / Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals

The Spinning Top

The spinning top is an intriguing candlestick. Unlike the Marubuzo, it does not provide a trader with explicit instructions on when to enter or exit the market. Nevertheless, it is useful in giving insight into the current state of the market, which can be used by traders to position themselves accordingly.

Examine the candle closely. What can you observe regarding its form?

Two features are quite noticeable: 

– The candles have a small real body.

– The two shadows, upper and lower, are nearly identical.

What transpired during the day which led to the creation of the spinning top? At first glimpse, it may look like a plain candle with a small shape, but in reality, there were several extraordinary events that happened at some point throughout the day.

Let us keep track of what happens next.

  1. Small real body- This indicates that the open and close price points of a stock are quite close. For example, if the open is 210 and close is 213, or if the open is 210 and the close is 207, this results in a small real body with only a 3 point move on a 200 Rupee stock. 

The colour of the candle doesn’t have significance – it can be either blue or red – as long as the open and close prices are nearby each other.

  1. The upper shadow – The upper shadow provides an insight into the battle between bulls and bears. It connects the real body to either the high and open (red candle) or high and close (blue candle). By considering only this element, we can assume that there was an effort by the bulls to take prices higher. 

However, it wasn’t successful, as evidenced by a short candle rather than a long blue one. Consequently, it is clear that while they made an attempt to push prices up, they eventually failed.

  1. The lower shadow – The lower shadow connects the real body to the market’s lowest point. In a red candle, these would be the low and close points. In a blue candle, the low and open points are connected. What can tell us if we look at the real body and ignore the upper shadow? 

It shows that while bears tried to push prices down, they were not successful. If they had been successful, then there would have been a long red candle as opposed to a short one. Therefore, while they made an effort, bearish forces weren’t able to lower prices significantly.

Consider the spinning top, with its real body, upper shadow, and lower shadow. Bulls attempted to push the market upwards, but in vain. Similarly, bears were unsuccessful in dragging it downwards. 

Neither side could exert any power, as it’s evident from the small real body. This demonstrates that indecision and doubt are prevalent – spinning tops are telling of such a situation.

A single spinning top has little significance by itself. It reveals neutrality, with neither bulls nor bears able to move the markets. Yet when seen in relation to the chart trend, it supplies a strong signal for making market decisions.

Spinning tops in a downtrend

It’s possible that a spinning top could show up in a bearish environment. If so, it may signal that the downtrend may be starting to reverse.

In a downtrend, the bears are ruling as they push prices lower. A spinning top formation could be a sign of bears consolidating their power in preparation for another selling frenzy. The bulls have also made attempts to stabilise the falling prices, but they seem to have been unable to hold their own. 

It is obvious that if they had managed to turn things around, the day wouldn’t have ended up with just a spinning top but something much better – a strong blue candle.

Considering there is a downtrend with spinning tops, what position should one take? It all depends on what we anticipate in the near future. We must accept that there are two possibilities, each with an equal likelihood:

Either there will be another round of selling.

  1. Alternatively, the markets could take a turn, leading to higher prices.
  1. Clearly, without any certainty of what may occur, the trader needs to be ready for either outcome, whether it be a reversal or perpetuation.

This could be a great opportunity for the trader to go long on the stock. To play safe, he ought to only invest half of what was originally intended – for example, if buying 500 shares was planned, 250 should be purchased first. By using this strategy, the trader has a chance to buy at the lowest price if the market reverses and average up by adding more if it moves upwards.

If the stock begins to decline, the trader can exit the trade and accept a loss. Fortunately, only half of their position is affected as opposed to the entire quantity.

The direction of future price movement is inconclusive. Nevertheless, something is sure – there will be a change. Therefore, one should be ready for any kind of eventuality.

    captcha


    Get the App Now
    • Open FREE Demat account
      Welcome to StoxBox !