Bearish Spinning Top

Bearish Spinning Top: Definition, Structure, Trading, and Example

When you see a bearish spinning top on your chart, it signals potential market indecision. This simple guide breaks down the essentials: what a bearish spinning top looks like, its implications for traders, and actionable insights for trading this pattern effectively. Let’s dive into understanding and leveraging the bearish spinning top in technical analysis. We provide statistics and facts based on backtesting we have done.

Table of contents:

Key Takeaways

  • The bearish spinning top pattern signifies market indecision with a small real body and long shadows, indicating a struggle between bulls and bears but requiring confirmation from subsequent candles.
  • Although a bearish spinning top can follow an uptrend or downtrend, suggesting a potential reversal, it is not a definitive signal on its own and should be used in conjunction with other technical indicators for confirmation.
  • Traders should tread cautiously when using the bearish spinning top pattern for trading decisions, as it does not offer a defined exit strategy and must be combined with risk management practices and additional analysis.
  • We have quantified all candlestick patterns into quantified trading rules and backtested them. We also have the code for Amibroker and Tradestation. You will find it in our candlestick course.

What is a Bearish Spinning Top?

A bearish spinning top is identified by its single candlestick structure that exhibits a minimal real body and extensive upper and lower shadows. It’s characterized by having an opening price that is higher than its closing price.

This formation symbolizes an intense battle for control between buyers and sellers, encapsulating moments of market hesitation as both forces are evenly matched. In certain cases, it looks a little like dojis.

On a chart, a spinning top would look like this:

Bearish spinning top example
Bearish spinning top example

Following either an upward or downward price trend, this bearish spinning top might signal an impending reversal in pricing trends. Such predictions are not guaranteed to materialize, of course, as false signals are frequent.

It becomes crucial to observe subsequent candlesticks which will ultimately confirm whether there has been a definitive change in market direction—underscoring that while the appearance of a single bearish spinning top with long upper and lower shadows indicates uncertainty, the narrative truly evolves with what happens next on the chart pattern stage.

What is an Example of Bearish Spinning Top?

An example of a spinning top is this scenario:

  • The stock’s opening price is $145, identical to its commencement figure from yesterday.
  • It surges to reach a peak of $147.
  • Then it declines hitting a bottom of $143.
  • And settles slightly higher than open at $145.50 by close.

In the stock market, a bearish spinning top emerges when an asset initiates trading at a particular opening price, undergoes considerable volatility during the session, but ultimately finishes near its starting value, just as in the example and chart above. Such movements create what is known as a spinning top, which reflects traders’ hesitation and lack of consensus on the asset’s direction.

Should this pattern manifest itself subsequent to an upward trend in price, it could suggest that bullish investors are losing their grip on the market dynamics—a precursor for possible bearish reversal.

How does the Bearish Spinning Top work?

A spinning top works like this:

A bearish spinning top embodies the uncertainty in a market, reflecting an ongoing tug-of-war between buyers and sellers. The upper shadow signifies that while buyers initially managed to elevate prices, their success was short-lived, ultimately leaving behind a signal indicative of potential downturns.

On the flip side, the extensive lower shadow represents bears’ efforts to depress market values only to fail at sustaining those reduced levels, thus hinting at their diminishing dominance.

Following an uptrend, if this candlestick pattern emerges, it could foreshadow a shift toward bearish momentum as control begins tilting toward sellers. Nevertheless, when this pattern is spotted during periods of lateral price movement, it points towards the persistence of such sideways trading conditions. These can either substantiate continued horizontal trends or suggest impending shifts indicating a reversal in trend direction.

What is the Indication of a Bearish Spinning Top?

A bearish spinning top indicates a potential trend reversal if it the days before was bullish. It suggests that the existing bullish momentum may be waning, with bulls losing their grip on the market. When this pattern emerges following a pronounced uptrend, it could signal that control is poised to shift toward bearish investors.

Caution should be exercised as this formation does not guarantee an imminent reversal in trend, of course. Many traders seek validation through subsequent candlestick formations or corroborative technical indicators before executing trades based on such patterns. However, as we always recommend, it is to backtest to find out what has historically worked and what has not.

What are the Types of Spinning Tops for Candlesticks?

There are two types of spinning tops: both bullish and bearish spinning tops. When a bullish spinning top is identified at a downtrend’s lower end, it can signal an impending bullish reversal. Conversely, spotting a bearish spinning top at the climax of an uptrend might indicate a possible bearish reversal.

These two formations are indicative rather than conclusive signs of market direction shifts. Again, you must backtest to find out what works and what doesn’t.

How do you use Bearish Spinning Top in Trading?

You use a spinning top as an indicator, or you might choose to use it in collaboration with other indicators. We prefer the latter.

When observed following a period of upward prices, this configuration may suggest that the prevailing uptrend could be poised to reverse into a downtrend. You can use the RSI indicator to help you determine if the market is overbought. You do this by backtesting.

What are the Best Bearish Indicators?

Best Bearish Indicators

There are no best bearish indicators except sentiment and timing indicators. While the bearish spinning top is a significant tool, it’s just one of many candlesticks patterns and indicators that traders can rely on when looking for a downtrend. There are other key “bearish” indicators at their disposal including:

  • Accumulation/Distribution Line
  • Average Directional Index (ADX)
  • Stochastics
  • Moving Average Convergence Divergence (MACD)
  • Relative Strength Index (RSI)

These tools and indicators can be used together with a spinning top and other indicators.

Incorporating one additional indicator provides additional perspective and aids investors in making better trading signals and strategies.

What does Bearish Mean?

Bearish means that that prices will, can, or actually go down. The opposite is Bull. Bearish is a crucial term in the lexicon of trading, denoting a market scenario wherein stock prices are anticipated to decline. When operating in such a bearish environment, investors proceed under the assumption that stock values will recede, and this belief shapes their approach to trading with strategies like:

  • sell their position,
  • engaging in short selling,
  • acquiring put options,
  • diminishing involvement with equities.

What are other types of Bearish Patterns?

Other types of bearish patterns are Hanging Man, Dark Cloud Cover, Bearish Engulfing, Evening Star, Three Black Crows, and Bearish Pennant, for example.

What Errors Do Traders Frequently Make When Trading the Bearish Spinning Top Pattern?

The biggest mistake traders make is that they trade a spinning top pattern without having many clues about its profitability and significance. You discover this by backtesting or buying our candlestick course that has quantified and backtested all 75 candlestick patterns.

A common mistake among traders is to conclude that a bearish spinning top pattern will inevitably result in a downward trend reversal. This assumption may lead them into trades based on incomplete information.

Errors also arise from misapplying tools for technical analysis. Some traders might put too much emphasis on just one indicator such as a bullish or bearish spinning top without cross-verifying this signal against additional indicators or assessing trade volume data carefully, for example.

There are those who prematurely anticipate trend reversals simply because they spot a spinning top pattern, neglecting validation from other indicators.

How to Avoid Frequent Errors when Trading Bearish Spinning Top Patterns?

One should not rely exclusively on the appearance of the spinning top pattern. Instead, it’s advisable to seek confirmation from supplementary technical indicators or chart formations.

Overall, you need a trading plan that is based on solid research so that you have ideas about portability and which signals you should act on. Most traders don’t, but they still expect to make a lot of money. Most likely such unsystematic traders are going to lose money and fail.

You need a plan based on backtesting, but you also need a trading journal or log. A robust plan ought to encompass precise entry and exit prices and some more.

What are the Limitations of The Bearish Spinning Top Pattern?

The limitation of the spinning top is that you need additional tools and indicators to trade it successfully. A spinning top is liable to many false signals. A multitude of spinning tops may not lead to the expected directional change even when they come after confirmation signals. Entering trades based on a spinning top can prove difficult due to potentially significant fluctuations between the high and low prices within the candle’s range.

The bearish spinning pattern doesn’t provide traders with specific price targets or strategies for exiting positions. Consequently, without integrating additional techniques or indicators into their strategy, traders might struggle to determine prospective rewards and devise profitable exit plans from their trades involving spinning tops patterns.

How Can I Identify A Bearish Spinning Top Pattern?

You recognize a spinning top by a small real body flanked by substantial upper and lower shadows, indicating a state of uncertainty among traders. When this bearish spinning top emerges following an upward price trend, it often signals that the market may be poised for a reversal as sellers begin to dominate.

On the other hand, when this particular spinning top pattern surfaces while prices are consolidating within a range-bound market, it typically implies that lateral movement will persist without significant directional change.

What happens after a Bearish Spinning Top Pattern?

What happens after a bearish spinning top depends on probabilities. But overall, you can expect average gains in the days following a spinning top in the stock market. This means that its predictive power is practically zero if its used alone without any additional indicator.

We backtested the spinning top formation in the S&P 500, and we got the following table and the returns N-days after a spinning top:

How profitable is a bearish spinning top?
How profitable is a bearish spinning top?

A spinning top is frequent: 687 observations from 1993 until today. The table shows why you need an additional indicator to trade a bearish spinning top.

What is the structure of a Bearish Spinning Top Candlestick Pattern?

The structure of a bearish spinning top is a compact real body that sits equidistant between extensive upper and lower shadows. This small real body signifies only a slight variation between the opening and closing prices within the trading period. It can accidentally be recognized as a one of the dojis.

In the case of a bearish spinning top, it’s characteristic for the closing price to be below the opening price.

When does the Bearish Spinning Top Candlestick Pattern occur?

A bearish spinning top can occur any time. During times of market uncertainty, where neither the buyers nor the sellers maintain a decisive advantage, often succeeding a noteworthy price fluctuation in any direction, one may observe the formation of a bearish spinning top candlestick pattern.

This occurs when there is substantial movement in both directions within a trading session but results in an ending price that lies near to its starting point. The close proximity of opening and closing prices encapsulates the essence of hesitation prevalent within the market—illustrated by this specific type of spinning top candlestick pattern.

How often does the Bearish Spinning Top Candlestick Pattern happen?

The bearish spinning top happens very frequently. In the stock market, we counted 687 observations from 1993 until today.

How do you trade with a Bearish Spinning Top Candlestick Pattern in the stock market?

In the stock market, you trade a bearish spinning top after a price rise. You only want to trade a spinning top after a positive trend as a reversal signal. For this, you need an additional indicator and use quantified trading rules to backtest it.

The appearance of spinning tops alone does not offer high reliability as an indicator. When these bearish spinning tops form after a price has been trending upwards, they may suggest that the current uptrend will soon shift into a downtrend if the backtest supports it.

What is an example of a Bearish Spinning Top Candlestick Pattern?

Below is a practical example of a bearish spinning top candlestick pattern:

  • It starts trading at $250
  • Climbs to an intraday peak of $255
  • Retreats to an intraday trough of $245
  • Ends up slightly higher than its opening at $250.50

Such movement results in what is known as a spinning top, which reflects trader hesitancy and ambivalence.

Should this type of bearish spinning occur subsequent to an upward trend in price, it may be indicative of the bulls gradually losing their grip on the market, thereby suggesting that a bearish reversal might soon unfold.

How do you identify the Bearish Spinning Top Candlestick Pattern in technical analysis?

You identify a bearish spinning top candlestick pattern in technical analysis when you see a compact real body flanked by extended upper and lower shadows (that represent market uncertainty). That said, we recommend you quantify the trading rules and use a scanner.

Should the bearish spinning top emerge following an uptrend, it could signal an impending change toward a downtrend, indicating that bears may be beginning to assert dominance.

How accurate is the Bearish Spinning Top Candlestick Pattern in Technical Analysis?

The bearish spinning top candlestick pattern is not very accurate. After a spinning top in the stock market, you can expect average returns in the next one to ten days. Thus, it has very little predictive power on its own.

What are the advantages of a Bearish Spinning Top Candlestick?

The advantages of a bearish spinning top are that it’s easy to identify, it happens frequently, and you can use it together with other indicators.

You can:

  • Foresee possible reversals in the market (if you backtest)
  • Identify early signs of potential bearish turnarounds
  • Adjust their trading approaches in a timely manner.

What are the disadvantages of a Bearish Spinning Top Candlestick?

The disadvantages of a bearish spinning top are that it looks like a doji oand it has a poor history of predicting the future.

While traders value the spinning top candlestick pattern, it’s important to note that not all bearish spinning tops lead to a market reversal, even with subsequent confirmation. Navigating trades around a spinning top candlestick can prove difficult due to its often wide high-to-low range.

Is Bearish Spinning Top Candlestick Pattern profitable?

The bearish spinning top is not a very profitable candlestick pattern. In the stock market, backtests reveal that you can expect an average return in the next one to ten days.

The spinning top candlestick pattern, specifically the bearish spinning top, is not a standalone indicator of profit since it represents uncertainty in market sentiment and requires subsequent candles or additional technical indicators for confirmation.

What are other Types of Candlestick besides Bearish Spinning Top?

Other types of candlestick patterns besides bearish spinning tops are engulfing patterns, dojis, and dark cloud cover.

The world of candlestick patterns includes many forms, with the bearish spinning top as just one example among a myriad that traders utilize for their strategies. Other key candlestick formations include the Doji, hammer, and engulfing patterns—each offering unique perspectives on market sentiments and serving as an essential part of a trader’s analytical arsenal.

Conversely, there are specific configurations like the Inverse Hammer, Bullish Engulfing, and Piercing Line patterns that herald potential bullish reversals.

What does a bearish spinning top mean?

A bearish spinning top mean that the market finished at a lower level than its opening, suggesting there might be an impending decline in the market’s direction. However, you need additional indicators to trade it.

What does a spinning top indicate?

A spinning top indicates market indecision and uncertainty about the asset’s future trajectory, potentially heralding either neutral trends or an impending price reversal.

How do you trade spinning tops?

You trade spinning tops by quantifying the rules and applying at least a secondary indicator.

What are the limitations of the Bearish Spinning Top Pattern?

The limitations of the bearish spinning top pattern are that it has weak predictive power and its occasional failure to indicate a reversal, the absence of specific price targets or strategies for exiting positions, and challenges in evaluating potential rewards without incorporating supplementary tactics or indicators.

Blow Off Top

How can I identify a Bearish Spinning Top Pattern?

You identify a bearish spinning top by seeking a diminutive real body accompanied by elongated upper and lower shadows. This formation suggests uncertainty within the market and often emerges following an uptrend, hinting at a possible transition to a downtrend where bears are starting to take over.

What is the difference between a Bearish Spinning Top Candlestick Pattern and a Doji Candlestick Pattern?

The difference between a bearish spinning top and a doji is that their body size is different . The doji has an exceedingly small body that shows the open and close prices to be either identical or nearly so.

In contrast, a bearish spinning top’s body is broader because its opening and closing prices are near each other but not exactly the same. Consequently, even though these candlestick patterns may appear alike at first glance, they communicate distinct sentiments in the market.

What is the difference between a Bearish Spinning Top Candlestick Pattern and an Inverted Hammer Candlestick Pattern?

The difference between a bearish spinning top and an inverted hammer doji is that the inverted hammer is identified by its prominent upper shadow and a small lower shadow, which suggests initial buying pressure that ultimately fails against selling pressure insufficient to push prices significantly lower.

In contrast, the Bearish Spinning Top features a compact body situated equidistantly between similar-length shadows on either end. This configuration reflects market uncertainty as neither buyers nor sellers could make an impactful move in price direction.

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A bearish spinning top signals market indecision and potential trend reversals, making it a possible tool for those who know how to use it. However, it’s important to remember that the spinning top is not accurate and happens frequently, so you need additional indicators to trade it.

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