A spinning top candlestick pattern indicates market indecision. It forms when the open and close prices are very close to each other, resulting in a small real body, but the candle has long upper and lower shadows (or wicks). This suggests that both buyers (bulls) and sellers (bears) were actively trying to move the price in their favor during the trading period, but neither side was able to gain a decisive advantage.
Key takeaways of a spinning top pattern:
* Indecision: The primary meaning is a stalemate between buyers and sellers.
* Potential Reversal: When a spinning top appears after a strong uptrend or downtrend, it can be a signal that the current momentum is weakening and a reversal may be on the horizon. It indicates that the current trend is losing steam.
* Continuation/Consolidation: If a spinning top appears within a sideways or range-bound market, it reinforces the idea of indecision and can signal that the price will continue to move sideways.
* Confirmation is Key: A spinning top is not a strong signal on its own. Traders typically look for the candle that follows it for confirmation. For example, if a spinning top appears after an uptrend and the next candle is a strong bearish candle, it increases the likelihood of a reversal.
In essence, a spinning top suggests a pause in the market where traders are waiting for new information before committing to a new direction.