What is a Spinning Top
A spinning top is a candlestick pattern with a short real body that's vertically centered between long upper and lower shadows. Often times, the candlestick pattern is a sign of indecision about the future direction of the underlying asset.
BREAKING DOWN Spinning Top
Spinning tops are a sign of indecision in the market because the long upper and lower shadows didn't result in a meaningful change in price between the open and close. In other words, the bulls sent the price sharply higher and the bears sent the price sharply lower, but in the end, the price closed near where it opened at the beginning of the session. This indecision can be the sign of an upcoming trend reversal.
While spinning tops may be relatively benign on the day they occur, they are often a sign of significant trend changes over the coming periods. A spinning top that occurs at the top of a bullish uptrend could be a sign that bulls are losing their control and the trend may reverse. Similarly, a spinning top at the bottom of a downtrend could signal that bears are losing control and bulls may take the reins.
Spinning tops are a relatively common candlestick pattern, which means that it works best in conjunction with other forms of technical analysis. For example, traders may look at technical indicators, like the moving average convergence-divergence (MACD) or relative strength index (RSI), for signs of a reversal before initiating a closing, a long position, or a short position. Spinning tops may also be helpful when looking at the likelihood of a security to breakout from a chart pattern or areas of support or resistance. Finally, it's important to consider volume as well.
Example of a Spinning Top
The following chart shows an example of a spinning top candlestick pattern in Apple Inc. (AAPL) stock that resulted in a reversal of the prevailing trend.
In this case, Apple was engaged in a significant uptrend over a period of time. A spinning top candlestick pattern appeared and the stock began to move sideways amid growing indecision. The stock then eventually reversed direction and moved lower in the following sessions. Traders may have used the spinning top pattern as a sign to close out long positions and explore opening potential short positions. Of course, traders would have also looked at confirmation in other technical indicators before acting on these sentiments.