Spinning Top Candlestick Pattern
The spinning top candle stick pattern as the name suggests looks like a “top spinning.” It is an indecisive candle as it does not give a trader an expected price movement in the market but one can understand the sentiment hovering over the market.
As you can see in the picture, this candle has a shorter body in the middle and two long shadows or wicks which determine the highs and lows of the period.
Formation
When the price opens for that period, the market forces tend to pull it down and the bulls enter to push the price up which leads to the formation of the long lower wick with an upper-body which leads to the formation of a bullish spinning top. Similarly, when the bulls are moving the price upward and the bears enter they try to pull the price down forming a long upper shadow and the closing is somewhere in between the open & high or open & low.
Let us take an example of a stock, Avenues Supermarts, on 11th July 2022 the stock opened at Rs.4000.00 bulls entered and then created a high of 4087.85. At 4087.85, the bears entered and pulled the price to Rs.3893.00 making the low of the day, again the bulls entered and pushed the price up to close at Rs.3986.85.
This push and pull of the prices by the bulls and bears at the same time created indecisiveness in the market with very little price movement leading to the formation of such candle-stick patterns.
NOTE: The color of the candle does not matter much so whether they are green or red they mean the same because the market movers couldn’t take the market in either of the directions causing indecisiveness in the market.
How to take trades?
This pattern appears when the market movers are not sure where the market is going or will go. In this situation, two things can happen either the trend will continue or a reversal may occur. For example, if the market is in a downtrend and this pattern appears then it is advised that the traders should wait and observe the direction in which the market is moving if it is continuing to move in a downtrend then take a short position and if it is giving any kind of reversal or breakout then go long in the stock with stoploss according to your risk taking capacity.
Example
On 30th June and 4th July 2022 two indecisive candles formed respectively, then on the 5th of July there was a breakout in an upward direction after which the stock moved significantly by 27% within 3 months which is phenomenal in the cash market.
On the 10th of October 2022, there was indecisiveness at the top of the chart, soon after which there was a lower breakout after which the stock moved by -25%.
