Price Action Candlesticks Patterns

Knowledge of current economic events is a fundamental element of effective trading. In the case of currency pairs and indices, the ability to use the calendar is already satisfactory. Nevertheless, to assess market sentiment, it is worth following current events. In the case of instruments such as shares, tracking information from companies is a necessity.

Spinning Top

Spinning Top Formation: Signal of Uncertainty in the Financial Market

Introduction: The "Spinning Top" formation is a popular pattern in technical analysis that signals uncertainty in the financial market. It is a formation that often appears during consolidation periods or trend reversals. In this article, we will take a closer look at the "Spinning Top" formation, its structure, significance, and how one can execute trades based on this pattern.

What does the "Spinning Top" formation look like? The "Spinning Top" formation consists of a single candle:

Candle Body: It has a very small candle body, indicating a balance between supply and demand.
Upper and Lower Shadows: The "Spinning Top" candle has short upper and lower shadows, indicating that the opening and closing prices were close to each other, but the price during the session fluctuated significantly.

Key Information about the "Spinning Top" Formation:

The "Spinning Top" formation signals a lack of clear market direction and uncertainty among investors.
The shorter the candle body and the longer the shadows, the stronger the market uncertainty.
The "Spinning Top" formation may signal a potential trend reversal, but it typically requires confirmation by subsequent candles.

How to Trade Based on the "Spinning Top" Formation?

Market Context: Before entering a trade based on the "Spinning Top" formation, it's worth checking if the formation appears in the right market context. This formation may signal consolidation after a strong price move or investor uncertainty about the market's further direction.
Signal Confirmation: The "Spinning Top" formation requires confirmation by subsequent candles. Traders often wait for confirmation of price movement up or down in the next session.
Placing Buy or Sell Orders: When the "Spinning Top" formation appears at the end of an uptrend, traders may consider placing sell orders. Conversely, when it appears at the end of a downtrend, placing buy orders is considered.
Setting Stop Loss: Stop loss can be placed above the upper shadow if entering a sell trade, or below the lower shadow if entering a buy trade.
Taking Profit: Various profit management strategies can be applied, such as exiting a position after reaching a specified profit level or monitoring candles on higher timeframes and closing positions when reversal signals appear.

Summary: The "Spinning Top" formation signals uncertainty in the financial market and can be an early warning of a potential trend reversal. However, due to its nature, this formation requires confirmation by subsequent candles or other technical analysis tools to be an effective trading signal.