There are candlestick patterns that show seemingly every potential move or direction a stock or ETF could go next, and the more easily you recognize those patterns, the more successful you will be as a trader.
One useful pattern that doesn’t seem to get talked about as much as others is the green spinning top, a candlestick formation that’s a neutral pattern indicating indecision among traders that could lead to a reversal at the end of a downtrend. It’s a good pattern to add to your toolkit, as it can pay off if your execution is on point.
Green spinning top explained
The green spinning top is a candlestick formation in which the real body is small, but the stock had a wide trading range. In other words, the closing and opening prices are relatively close, in relation to the movements between high and low price.
If there is a green spinning top at the end of a downtrend, it can indicate that the bears are losing the battle and may look to close out. Therefore, the green spinning top could show that a bottom is about to form and that the stock might be preparing to reverse.
Here’s an example:
In this daily chart on Facebook Inc. (FB), the stock clearly was in a downtrend with the potential to form a bottom at the support area around $115. Within this downtrend, Facebook formed a green spinning top pattern, indicating a potential reversal.
Look at what happened after the green spinning top: the stock trended higher above $150 in just a matter of a few months, 30-plus percent gain from the $115 level.
The bottom line
Look for green spinning tops when you think a reversal might be in the cards for a security. Like all technical indicators, it’s not a foolproof pattern, but if you use it in conjunction with other technical tools like support lines, you’ll be a more-informed trader, ready to act in the early stages as a downtrend ends.
Petra Hess runs PetraPicks.com. She is a technical swing trader and long-term investor in domestic and Canadian stocks and ETFs.