Candlestick Pattern-Spinning Top (The Spinning Top)

Spinning Top (The Spinning Top)

The spinning top is a very interesting candlestick. It does not give the trader the right signal to enter and  exit the market like Marubozu, but spinning top gives very important information about the current state of the market, based on this information, it becomes easier for the trader to make his position in the market.

The candle of the spinning top is shown below, look carefully at it and tell what you see special in it.

You will see that

• The real body in  these candles is quite small.
• You will also see that the upper and lower shadows are equal.

What do you think would have happened in the market during the day that made the spinning top candle? The spinning top looks very simple, small real body candle, but in reality, there are signs of many events that happened during the day.

Let's take a look at these events:

 

1.  Small Real Body –  This shows that the open price and the close price are very close to each other. For example, the open price  can be ₹ 210 and the closing price  can be ₹ 213 or the open price can be ₹ 210 and the closing price  can be ₹ 207. In both these situations, it is common to become a small real body because a  change of ₹3  does not matter much for a stock priced at  ₹200. Because the open price and the closing price are so close to each other, the color of the candle does not make much sense. Whether the candle is blue or red, it does not matter, which means that the open price and the close price are very close to each other.
2. Upper Shadow–  The Upper Shadow connects the real body to the highest level of the day. If it is a red candle, then high and open connect to each other and if it is a blue candle then high and close connect to each other. If you forget the lower shadow for a while, and focus only on the small real body and the upper shadow, what do you understand, what would have happened in the market? The presence of Upper Shadow there shows that bulls in the market tried to take the market up, but they did not succeed in this attempt. If he had succeeded in this attempt, the Real Candle would have been a long blue candle, not a small candle. This means that the Bulls tried but did not succeed in their attempt.
3.  Lower Shadow – The lower shadow connects the real body to the lowest point of the day i.e. the lowest price. If it is a red candle, then Lo and Close join together and if it is a blue candle, then Lo and Open join together. If you look at the real body and the lower shadow together and don't pay attention to the upper shadow, what do you see, what would have happened? Just like it happened with the Bulls, the presence of Lower Shadow there shows that bears tried to take control of the market and pull the market down, but they did not succeed in their attempt.  If Bears had succeeded in his attempt, the real body would be long and red and not a small candle, so it would be considered as an attempt by the bears.

Now combine all the parts of the spinning top - real body, upper shadow and lower shadow together to guess about them. The Bulls made an attempt to move the market up which did not succeed, the Bears tried to move the market down, which did not succeed. Both bulls and bears tried to take over the market, but their efforts did not succeed. That's what the small real body shows. That is why spinning top means that there is uncertainty in the market right now and no one direction is being decided in the market.

If you look at the spinning top, it does not tell you much, only that both bulls and bears could not capture the market. But when you look at the spinning top on a chart, it will tell you in a very strong way what is happening in the market and based on that you will be able to make your position in the market.

 

Meaning of spinning top in recession

What will happen if the stock is in a recession if the spinning top becomes a candle? When there is a recession, the market is occupied by bears. At the time of becoming a spinning top, Bears may be preparing for a new round of selling. While bulls are trying to stop the fall in the market, they are making their positions, but their efforts are not succeeding. If the Bulls' attempt had been successful, it would have been a blue candle day and not a spinning top.

In such a situation, what will you decide considering the spinning top? While deciding, you have to see what is going to happen next. Two things can happen next:

1. Either there will be more selling in the market.
2. Or the market will recover and start moving upwards.

When the picture is not clear, the trader should prepare for both the positions on both sides i.e. preparing to go down and go up.

If the trader is looking for a chance to accelerate in the market, then this may be the right opportunity for him, but he will need to be a little careful. Therefore, in such a situation, he should invest only half of his total capital at this time. That is, if he intended  to buy 500 shares, then he  should buy only 250 shares at this time, and wait.

It should be seen what is the trend of the market and where the market goes. If the market goes upwards, it can also buy the remaining 250 shares and average the price. If the market really starts moving upwards, then the trader will have got the shares at the lowest price.

But suppose the reverse happens and the share prices start falling further, the trader will lose only half because he has bought half the shares, not the whole.

Here is a chart below showing what happens when a spinning top is formed during a recession.

Now let's look at another chart, after the spinning top in this chart, there is a period of recession.

It can be said that spinning top is the peace before the storm. This storm can increase anyone's speed or recession. This storm can also bring a change in the trend. It is not known where the market will go, but it is definitely known that the market is going to get direction and you have to be prepared for it.

 Meaning of spinning top in fast

The impact of the spinning top of the boom time is the same as that of the time of recession. We just look at it a little differently. Look at the chart below and tell us what you feel.

It is very clear here that the market is bullish, which means that the markets are completely occupied by the Bulls. But since the spinning top was made, there has been a bit of confusion.

1. The bulls' grip on the market has weakened, otherwise the spinning top would not have been created.
2. Becoming a spinning top means that bears have entered the market with a recession. Although they have not been successful yet, the Bulls have given them a place to enter.

What will you do now? What does this situation mean? What position do you think you should take?

1. The spinning top shows that there is confusion in the market and neither bulls nor  bears are able to fully capture the market.
2. Looking at this fast-paced environment, we know two things.

• The Bulls are holding their positions and preparing for the start of a new rally.

• Bulls are tired and now they can give bears a chance to enter the market, which means that a correction is going to come in the market.
• The probability of these two in the market is 50-50% i.e. half.

What will you do now, the possibilities on both sides are equal, so what will be your next step? In fact, you should be prepared on both sides.

Suppose you bought shares before the stock market rally started, this is an opportunity for you to book some profits. But in such a situation, you should not book your full profit, suppose you have 500 shares, you  can sell 50% of it i.e. 250 shares. Two things can happen after you do this:

1. Bears come to the market – If there is a recession in the market and bears enter the market, if this happens then the market will start going downwards. You have  taken advantage by selling 50% of the shares, now you  can withdraw the profit you are getting from the remaining 50%.  The profit you will get now will also be above the current market price of the market i.e. CMP.
2. If the bulls are really sluggish and preparing for a new rally,  then you still have 50% shares and you can make more profit in the coming time.

Such a decision can give you benefits on both sides.

After the rise in the chart below, a spinning top has been formed and after that the market has gained even more momentum. In such a situation, if 50% of your share investment is still in the market, then you can take advantage of this rally.

Overall the spinning top candle conveys the confusion and uncertainty of the market. This suggests that there are equal possibilities on both sides. Until the environment is clear, the trader should be a little careful and keep his position to a minimum.

Dojis

Doji also has a single candle pattern. They are also almost like spinning tops, but they do not have a real body at all.  Not having a real body means that open and close prices are equal here. Doji gives us information about the mood and environment of the market and in that sense it is an important pattern.

 

The definition of DOG is that the open price and the close price are equal and the real body should not be at all. The upper and lower shadows can be any larger.

However, keeping in mind the second rule of candlestick – we should be a little flexible in our thinking and check the pattern or chart–  at times even a pattern with thin candles can be considered dozi. There is no need to always look for a doji without a real body.

In such a   situation, the color of the candle is of no importance, the only thing that matters is that the open and close prices are equal.

The effect of DOGI is also similar to the spinning top. Everything we've learned about spinning tops applies to Doji as well. In fact, doji and spinning tops often appear together, in the same group, in one place and convey the confusion of the market.

If you look at the chart below, you will see how doji is formed in a bearish market and how it explains the confusion before the next move of the market.

 

Now look at this chart, here dog was formed after a good rise and after that the direction of the market changed and fell.

So now if you look at a doji or spinning top separately or together, remember that the market is directionless i.e. confused. In such a situation, the market can go in any direction and you should keep your trade in such a way that you can get the benefit of both sides.

Highlights of this chapter

1. The spinning top has a very small real body, plus,  the upper and lower shadows are almost equal.
2. The color of the candle in the spinning top does not matter. The importance is that open and close prices are very close to each other.
3. The spinning top explains the confusion of the market. Bulls and bears are on par, the market is looking for a new direction.
4. The formation of an upward spinning top at a rally means that either the bulls are slowing down and are preparing to take the market up again, either the bears are preparing to enter the market and the bullish is going to stop. In any case, the trader should be careful, buy only half of his total purchase and see the direction of the market.
5. The spinning top at the bottom of a rally means that the bears are tired or they are lethargic. If he is tired, bulls will enter the market and the trend will change and the market will go up. In both cases, the trader should be careful and make half of his deal.
6. Doji is also similar to a spinning top. They also show that the market is directionless. By definition, doji has almost no real body. But a candle with a very thin body can also be considered doji.
7. A trader's strategy is the same in doji and spinning top.