Looking At Other Patterns: Spinning Tops

Like the doji, the spinning top is another single-stick pattern that depends on market context and reveals a tight battle between bulls and bears. Whenever the bulls-versus-bears battle is close, eventually one side has to give, and when this happens, an explosive move in one direction is possible. My favorite analogy for that scenario is a coiled spring being pushed hard on both sides. Eventually one side gives in, and that’s the direction the spring flies.

The key is picking the right direction, and considering the market environment where you find your pattern helps you make the right pick. For spinning tops or any other patterns that indicate a tight battle between bulls and bears, if the bulls have been in charge for some time leading up to the pattern, it usually indicates that the bears are starting to gain some strength. And the reverse is also true: If the pattern appears during a bearish trend, it generally indicates that the bulls are going to make a run (and you don’t have to be in Pamplona to run with them).

Identifying spinning tops

To qualify as a spinning top, a candlestick should have a small body and wicks that stick out on both ends. The body should appear close to the center of the range of the day’s price action. Also, the wicks should both be at least as wide as the candle section of the candlestick. For a clear picture of what a spinning top looks like, check out Figure 6-14.

Figure 6-14: Examples of spinning ...

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