Welcome to episode 5 of the Daily Candle Stories series.
In our two previous episodes, we discussed decisive long candles; the Black and White Marubozo. (You can learn about Black Marubozos here and White Marubozos here).
However, not all candles are decisive. Today we are going to discuss a candle that is indecisive: The Spinning Top.
What is a Spinning Top?
Spinning Tops are short day candles (for more info on short day candles read Episode 2) that can either be bullish (green) or bearish (red).
Importantly, Spinning tops are hairy candles in that they have large shadows (For more info on hairy candles read Episode 2). In fact, for a Spinning Top to form, the shadows have to be larger …show more content…
The candle's form resembles the toy in the final scene of inception that made no sense ...
(fig1 spinning top example)
What do Spinning Tops Mean?
Indecision. Indecision. Indecision.
When you see Spinning Tops forming on a chart it means that neither the bulls or the bears have the strength to move the market.
In the final scene of inception, Di Caprio spins his spinning top on a table. The viewer is left to wonder: Is he still in the dream inception place? Or, did he make it out into reality?
When we see Spinning Tops on a chart, just like that confusing ass movie, we are left wondering if the market will pump? Or, will it go tumbling down?
Think of a Bull and a Bear sitting at a table locked in an epic arm wrestle. For a moment, the bull gains the upper hand and pushes the bear's hand down. However, the bear digs deep and recovers and pushes the bulls hand down. Then, at the final moment, the bull gives one final push and wrestles his hand back up.
Spinning Tops are an arm wrestle in a stalemate between the bulls and the bears.
At some point, one of these animals will become exhausted and crumple in defeat.
(fig 2 example of spinning tops on chart)
How to Trade Spinning …show more content…
In this case, we could have a correction on our hands.
(fig3 bullish reversal)
If the market is in a downtrend and a series of Spinning Tops appear on the chart, this may signal that all the weak hands have been washed out. In this case, with all the bears dead, the bulls may become emboldened and rally the price.
(fig 4 bearish reversal)
It's important to remember however, the Spinning Tops show indecision. At no point is it certain that the trend will reverse. The market will eventually make a decision and that decision, in many cases, can be a continuation of the trend.
(fig 5 continuation)
It's not the Spinning Tops themselves that should be acted upon. It's the candles that come after them that show the decision the market made that we are interested in (more on this in future episodes, so SUBSCRIBE NOW).
In Summary
When Spinning Tops appear the market is at a stalemate. Neither the bulls or the bears have what it takes to make a move.
This shows massive amounts of indecision and uncertainty in the market. However, at some point, a decision will be made and when it does, you need to be