When it comes to Forex trading, there are a lot of different strategies that people use in order to try and make money. Some people focus on long-term investments, while others prefer to trade in a more short-term fashion. Some traders focus on one particular currency pair, while others may trade multiple pairs. And still, other traders may use a variety of different indicators and technical analyses in order to find profitable trades.
One of the many candlestick patterns that some Forex traders look for is known as a spinning top. In this article, we’ll take a closer look at what spinning top candlesticks are, how they can be traded, and what factors you should be aware of when trading them.
How does Forex trading actually work?
Forex trading is the act of buying and selling currencies in order to make a profit. The foreign exchange market, or Forex for short, is one of the largest financial markets in the world, with a daily turnover of over $5 trillion.
What is a spinning top candlestick pattern in Forex trading?
A spinning top candlestick is a type of candlestick pattern that can be found on a price chart. This particular pattern is created when the open, high, and close are all very close together, resulting in a small body with long upper and lower shadows.
The psychology behind a spinning top is that the bulls and bears are both fighting for control, but neither side is able to gain an advantage. This can often be seen as a sign of indecision or uncertainty in the market.
There are a few different ways to trade spinning top candlesticks, but one of the most common is to look for them at key support and resistance levels. If the market is trading near a major support or resistance level and forms a spinning top candlestick, it could be a sign that the market is about to reverse.
Another way to trade spinning tops is by using them as part of a trend-continuation strategy. If the market is in an uptrend and forms a spinning top candlestick, it could be a sign that the market is losing momentum and about to reverse. However, if the market is in a downtrend and forms a spinning top candlestick, it could be a sign that the market is about to resume its downward trend.
What are common indicators of spinning top candlestick patterns?
As with any other type of trading strategy, it’s important to use spinning top candlesticks in conjunction with other technical indicators in order to increase your chances of success.
Some common indicators that are used with spinning top candlesticks include;
1. Moving Averages
A moving average is a technical indicator that shows the average price of a security over a given period of time. Moving averages are often used to identify trends and can be used as part of a trend- continuation or reversal strategy. To combine spinning top candlesticks with moving averages, you can look for instances where the market forms a spinning top candlestick near a moving average line.
2. Relative Strength Index (RSI)
The RSI is a momentum indicator that measures whether a market is overbought or oversold. It can be used as part of a trend- continuation or reversal strategy. To combine spinning top candlesticks with the RSI, you can look for instances where the market forms a spinning top candlestick at the same time that the RSI indicator is showing an overbought or oversold condition.
3. Standard Deviation
Standard deviation is a measure of how volatile security is. When combined with spinning top candlesticks, the standard deviation can be used to identify instances where the market is about to make a large move. To combine spinning top candlesticks with standard deviation, you can look for instances where the market forms a spinning top candlestick while the standard deviation indicator shows a high level of volatility.
4. On-Balance Volume (OBV)
The OBV indicator measures the volume of a security over time. It can be used as part of a trend- continuation or reversal strategy. To combine spinning top candlesticks with OBV, you can look for instances where the market forms a spinning top candlestick while the OBV indicator shows heavy buying or selling pressure.
Is a Forex spinning top pattern bullish or bearish?
The answer to this question depends on the market context in which the spinning top candlestick forms. If the market is in an uptrend and forms a spinning top candlestick, it could be a sign that the market is losing momentum and about to reverse. However, if the market is in a downtrend and forms a spinning top candlestick, it could be a sign that the market is about to resume its downward trend.
How to Trade Forex Spinning Top Candlestick Patterns
There are 4 steps to trading spinning top candlesticks;
Step 1: Learn to identify the spinning top
The first step to trading spinning top candlesticks is to learn how to identify them. Spinning tops are small candlesticks with small bodies and long wicks. They typically have very little difference between the open and close price, which means that they show little buying or selling pressure.
Step 2: Use indicators to identify market conditions
As with any other type of trading strategy, it’s important to use spinning top candlesticks in conjunction with other technical indicators in order to increase your chances of success. Some common indicators that are used with spinning top candlesticks include; moving averages, the RSI, standard deviation, and OBV.
Step 3: Enter a trade when the market conditions are right
Once you have identified a spinning top candlestick pattern and you have determined that the market conditions are favorable for a trend reversal, you can enter a trade. A common way to trade spinning tops is to buy when the market forms a bullish spinning top candlestick in an uptrend and to sell when the market forms a bearish spinning top candlestick in a downtrend.
Step 4: Place your stop loss and take profit orders
After you have entered a trade, you will need to place your stop loss and take profit orders. A common way to do this is to place your stop loss below the low of the spinning top candlestick and place your take profit order at least a 1:2 risk-to-reward ratio.
Frequently Asked Questions About Forex Spinning Top Candlestick Patterns
What is a spinning top candlestick?
A spinning top candlestick is a small candlestick with a small body and long wicks. They typically have very little difference between the open and close price, which means that they show little buying or selling pressure.
What are some common indicators that are used with spinning top?
Some common indicators that are used with spinning top candlesticks include; moving averages, the RSI, standard deviation, and OBV.
How do I trade spinning top candlesticks?
A common way to trade spinning tops is to buy when the market forms a bullish spinning top candlestick in an uptrend and to sell when the market forms a bearish spinning top candlestick in a downtrend.
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