Spinning top candles appear on a candlestick chart frequently. You may easily locate them on any time frame from one minute to monthly. The specifications defined for spinning top candles are very subjective. Thus a candle that you call it spinning top could be something else from another trader's perspective. In general we say that a candle is a spinning top if the range of the candle is relatively small, the size of the real body is small comparing to the range of the candle, and the upper shadow and lower shadow are relatively long comparing to the real body (see image).
A spinning top could be bullish or bearish but it is not a doji. This candle shows a clear battle between bears and bulls that goes nowhere. Both groups move the price up and down during the session but eventually the close is very near to the open. The relatively long shadows (wicks) show that each group has managed to push the price in their favour for a while but has eventually failed to maintain their edge.
You may see spinning tops in some multiple candle patterns such as Morning Star, Evening Star, Rising Three Methods, and Falling Three Methods. I will explain these patterns in future lessons.
A spinning top candle - on its own - does suggest indecision. It means that market participants have not made up their mind about the direction of the market. The best thing to do when you see isolated spinning tops is to avoid entering a new trade. Enter a new trade only if your other analysis tools tell you to do so. If you are already in a trade you may keep it open. Close such trades only if your strategy or trading plan suggests doing so. In other words you may ignore isolated spinning top candles as they do not bear that much information.
Locating Spinning Top Candles
Since the definition of spinning top is subjective it is relatively difficult to locate such candles automatically. I had to come up with some assumptions to develop a spinning top indicator. Here are my assumptions.
- The size of upper shadow is more than 90% of the size of the real body (i.e. if upper shadow is smaller than the real body its size is comparable to the real body)
- The size of lower shadow is more than 90% of the size of the real body (i.e. if lower shadow is smaller than the real body its size is comparable to the real body)
- Real body is smaller than 50% of the range (i.e. it occupies less than half of the size of the candle)
- Upper shadow is smaller than 2.5 times size of the lower shadow (i.e. lower shadow cannot be extremely smaller than the upper shadow)
- Lower shadow is smaller than 2.5 times size of the upper shadow (i.e. upper shadow cannot be extremely smaller than the lower shadow)
- Real body is larger than 5% of the range (i.e. real body is not very small or zero in size; spinning top is not a doji)
- Range is smaller than Average True Range (i.e. the size of the candle is relatively small)
I used these assumptions to develop a custom indicator which could locate spinning top candles on a chart (see image).
Download Spinning Top Indicator [link]
I have included the source code of the Spinning Top indicator so you can tweak my assumptions and settings and get the results you want. I believe the indicator is capable to locate such candles to a satisfactory level. Click here to download the indicator.
If you do not know how to install and use a custom indicator click here.
If you would like to be able to program custom indicators yourself you need to learn MQL programming. Click here to see the options that you may pick from.
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