If you are investing in stocks and observe price variations through chart patterns you would know how important and critical it is to identify a trend.
Every price movement in the market forms part of a trend that may be upward, downward or sideways.
Market moves in trend and the crucial part for an investor is to make their investment in accordance with the trend.
This was the most difficult thing I found while trading. Just identifying trend will not help you unless you are able to identify it at the right time. The market works on timing. If you miss your timing, you missed your chance to win the trade.
And no one understands this better than me. I had to suffer losses as identifying trend did not help me unless I was able to identify it at the right time and invest accordingly.
But what if you identify the trend and you are ready to invest thinking that everything is going according to your plan but the very next day trend changes.
Will you not feel frustrated? Despite all the analysis you did, you failed in the race of investment.
This made me frustrated too and this is the most common problem which beginners generally face.
Candlestick chart patterns helped me a lot to overcome this problem. If you know this method of identifying trend reversal you won’t be misleading yourself with market price actions.
If you want to know the 4 hidden interpretations of candlestick charts that are usually missed by investors. Click Here
Here you will know not only the method to judge trend reversal but also what mistakes you need to avoid that others make while identifying trend reversal.
Technically, this particular candle which helps in identifying reversal is called Spinning top candle type body.
Don’t worry you need not to memorize its name rather know it’s key significance and communicates with the market trends through these candles.
So the above image will help you to identify an ideal spinning top candlestick body type. You can see these types of candles in chart patterns. But before switching to the identification of such candles and learning their physical properties let us see what they actually want to say. What is the story behind the formation of such candles.?
Key interpretations you can use it for
- It helps to determine trend reversal in the market
- There is indecision in the market
- Buyers and sellers both are in a wait and watch condition
So here what we see that neither buyers nor sellers dominate the market This happens as buyers are filling up all the orders by sellers and the market gets closed to a price near to the price where it was opened.
- Small Body, close price is very near to open price
- Long shadows
- Can be bearish or bullish
So whether it is bearish or bullish candle they interpret the same thing that is a trend reversal. But what you need to locate is before the formation of spinning top candlestick there should be a proper formation of either downtrend or uptrend candlestick chart pattern. After such a trend if you find spinning top then you need to get alerted as the trend will definitely change
What mistakes you need to avoid
For a beginner it is very important to realize what they interpret is not their speculation. For spinning candlestick, you need to make sure the candle has long shadow and small body.
Long shadow and long body will not make a spinning top candlestick.
The close price must be near the open price.
Also, you need to identify a proper trend that should precede before spinning top candlestick. If you do not find any of these things make sure that what you are thinking as spinning top the only indecision in the market and not a trend reversal.
Try before you use
You need to train your eyes before practically using this technique. Try to identify from one-year chart patterns and analyze when does a real spinning top candlestick forms.
In the below image a typical example of spinning top candlestick body type is illustrated.
In both the case you will find that there was proper uptrend/downtrend in 4-5 sessions preceding the spinning top candlestick formation.
After the indecision in the market where both buyers and sellers are on the edge the trend gets reversed.
The only thing that ends up here doesn’t rely on a single source of information. It’s always better to ensure your prediction with other technical indicators and signals.
Afterall market is led by sentiments which can neither be controlled nor predicted.