Single Candlestick Patterns (Part 2)

After learning about Marubozu, Rajesh noticed that not all candles looked strong or directional. Some candles had small bodies with long shadows on both sides. He asked Priya what these candles meant. 

Priya smiled and said, “Not every candle shows dominance. Some candles show confusion. And understanding confusion in the market is just as important as understanding strength.”

Unlike Marubozu, which gives a clear directional signal, some candles mainly provide information about the current state of the market rather than immediate entry or exit signals. 

Two important patterns in this category are the Spinning Top and the Doji.

The Spinning Top – Structure and Meaning

A spinning top is a candlestick with a small real body and upper and lower shadows of almost equal length.

The small real body indicates that the opening and closing prices were very close to each other. 

For example, a stock may open at ₹200 and close at ₹202, or open at ₹200 and close at ₹198. In both cases, the price difference is small, resulting in a small body.

The upper shadow shows that buyers attempted to push the price higher during the session but could not sustain the move. The lower shadow shows that sellers also attempted to push the price lower but failed to maintain control.

When both buyers and sellers fail to dominate, the result is a spinning top. This indicates indecision in the market.

Priya explained, “A spinning top tells us that neither side is confident. The market is temporarily uncertain.”

On its own, a spinning top does not give a trading signal. Its importance depends on where it appears in the trend.

Spinning Top in a Downtrend

When spinning tops appear after a downtrend, the situation becomes interesting. In a downtrend, sellers are usually in control, pushing prices lower consistently. The appearance of spinning tops suggests that selling pressure may be slowing down.

This situation can lead to two possible outcomes:

1. Sellers may regain control and continue the downtrend.
2. Buyers may step in, causing a reversal.

Since both outcomes are possible, the trader should remain cautious.

If a trader were waiting to buy the stock, this could be an early sign of opportunity. However, instead of buying the full quantity, a cautious approach is preferred. A trader may initiate a smaller position and wait for confirmation before increasing exposure.

If prices start rising, the trader can add more to the position. If prices continue falling, the loss remains limited because the initial position size was small.

Priya described this situation as “the calm before a possible move,” where direction is uncertain but movement is likely.

Spinning Top in an Uptrend

The meaning of a spinning top changes when it appears after an uptrend. In an uptrend, buyers are in control, and prices keep moving higher. The appearance of spinning tops suggests that buyers may be losing momentum and sellers are beginning to participate.

Again, two outcomes are possible:

1. Buyers may resume control and continue the uptrend.
2. Sellers may gain strength, leading to a correction.

If a trader already holds the stock, this may be a good time to reduce a partial position and book some profits. 

For example, a trader holding 500 shares may sell a portion and retain the remaining shares. This way, both outcomes are managed - profits are protected if prices fall, and participation continues if prices rise further.

The key idea is caution. Spinning tops signal uncertainty, not direction.

The Doji – Another Form of Indecision

The Doji candlestick is very similar to the spinning top, but with one major difference - it has almost no real body. This means the opening and closing prices are nearly equal.

In textbook terms, the open and close are exactly the same. However, in real markets, a very thin body is acceptable under the rule of flexibility and verification.

The colour of the candle does not matter in a Doji because the open and close are nearly identical. What matters is the message - the market was unable to decide direction during that session.

Like spinning tops, dojis indicate indecision. They often appear in clusters before a significant price move. The market may either reverse or continue its existing trend after this phase of uncertainty.

Doji in Market Context

When a doji appears after a strong uptrend, it may signal exhaustion among buyers and the possibility of a correction. When it appears after a prolonged downtrend, it may indicate that selling pressure is weakening.

However, just like spinning tops, dojis do not provide immediate trading signals. They indicate that traders should wait for confirmation and avoid aggressive positioning.

Priya explained, “A doji tells you to slow down and observe. The market is deciding its next move.”

Rajesh said thoughtfully, “So spinning tops and dojis are not about action, but about caution.”

Priya nodded. “Exactly. When the market becomes uncertain, the trader’s job is not to predict, but to prepare.”

Rajesh smiled, “That actually makes sense. Sometimes doing less is also a decision.”

Priya replied, “And that’s an important lesson in trading.”

Key Takeaways

• Spinning tops have small bodies with nearly equal upper and lower shadows.
• They indicate indecision between buyers and sellers.
• Spinning tops in a downtrend may signal slowing selling pressure.
• Spinning tops in an uptrend may indicate weakening buying momentum.
• Doji candles have almost no real body, meaning open and close are nearly equal.
• Dojis also represent market indecision.
• Both spinning tops and dojis require confirmation before taking trades.
• Traders should reduce position size and remain cautious during indecisive market phases.