Trading the Spinning Top and Doji Candlestick Pattern
Want to learn how to trade the spinning top and doji candlestick pattern? In this article, I will show you how to identify the spinning top and doji candlestick pattern, and how to trade them successfully. This article will be the first in a series of price action posts in which I will reveal to you guys everything that I’ve learned about trading price action candlestick patterns and other chart patterns.
Doji candlesticks are those who’s opening and closing price is the same. They usually have relatively small upper and lower shadows, although there are exceptions. In the picture below, you can see some doji patterns.
In the same picture, you will also notice some spinning tops. Spinning tops are similar to dojis, and in Forex they can be traded the same way. Spinning top candlesticks are those who’s opening and closing prices differ by only a few pips. They, like doji candles, also usually have relatively small upper and lower shadows.
How to Trade the Spinning Top and Doji Candlestick Pattern
Many misinformed traders treat the spinning top or doji as a reversal pattern. The fact is that, although a doji or spinning top may often be followed by a reversal in price, the only thing it tells us for sure is that the market is unsure about what direction price should be going.
In the example above, price did reverse each time; however, often a doji or spinning top candlestick pattern signifies that price is simply slowing down at a level of support or resistance. Price could always continue in the direction it was heading.
The most important thing you should take from the lesson is that dojis and spinning tops signify neutrality in the market – not a reversal in price. Dojis and spinning tops can be used to prepare for a possible entry, and you can use them to note areas of support and resistance; however, you should never make a trade decision based on a doji formation or spinning top candlestick alone.
As with a few other price action techniques that will be taught in this series, multiple occurrences of these two candlestick formations increase the odds of a reversal in price. Keep in mind that the market can do anything at any time.
The majority of my knowledge in price action and candlestick patterns came from Steve. He is credited with introducing the western world to candlestick charts. He is THE expert on price action. I’ve also studied Nial Fuller’s price action course and a few others, but I highly recommend Steve Nison’s courses.
I hope you see how trading the spinning top and doji candlestick pattern can be useful to you. Learning these price action techniques is a great way to profit in the Forex market, especially when combined with another profitable trading system.
Overview of the Floor Trader’s Method The floor trader’s method is a trend following system which can be used effectively as a swing trading strategy. The floor trader’smethod is built on 3 important concepts: 1) it is a retracement-continuation trading method. 2)it uses moving averages to identify the trend and trades in the direction of that trend. 3) the trading setup or the trading trigger is a reversal pattern that forms after the retracement. If you spend a little bit more time understanding some of the most common reversal candlestick patterns, then it would make it much easier for you to understand this trading method. Retracements: In a downtrend, the retracement (or pullback) is the minor rally upward In an uptrend, the retracement(or pullback) is the minor rally downward Timeframes: 1hr and above Indicators: 9ema and 18ema Short Entry Rules (1) Wait for 9ema to cross 18ema to the downside. When this happens, it signals a downtrend. (2) Wait for a retracement where price goes back up and touches the 9ema or both ema’s. (3) Sell on the breakout of the Low of the candlestick prior to the current one (4) Place stop loss 1-5 pips above the “peak” of the retracement. Long Entry Rules (1) Wait for 9ema to cross 18ema to the upside. When this happens, it signals an uptrend. (2) Wait for a retracement where price goes back down and touches the 9ema or both ema’s. (3) Buy on the breakout of the High of the candlestick prior to the current one (4) Place stop loss 1-5 pips below the “trough” of the retracement. Floor Trader’s Method Buy Setup How To Manage Your Trade Here are some suggestions on how you can manage your trades that are in profit: move stop loss to break-even when the trade moves by the amount risked you may consider taking some profits off the table when price moves twice the distance of the retracement where you took the trade on. trail stop your trades behind each subsequent lower swing high that forms as price continues to move lower for a short trade. trail stop your trades behind each subsequent higher swing low that forms as price continues to move higher for a long trade. How To Setting Profit Targets Here are a few ideas on how you can set your profit targets: use fibonnaci tool to project your profit targets-the 161.8 & 261.8 fib levels are potential profit targets. or you can use 2 to 3 times the distance of the retracement to calculate your profit targets. Or you may not choose to set profit targets but trail stop your trades, locking profits as the trade moves in favour until you get stopped out. Advantages of the Floor Trader’s Method The trend is your friend. The floor trader’s method is a trend following trading system. It is simple swing trading strategy, easy to understand and implement Allows you to get into a trend in its beginning and you can ride out the trend if the first retracement happens happens quickly after the ema crossover. Higher timeframes are much more reliable. Trade Entry is dictated by Price Action Stop Loss is not placed at any arbitary location but above resistance levels for a short order and below support levels for long orders and this reduces the changes of getting stopped out in a trade prematurely. Disadvantages of The Floor Trader’s Method Forex Trading Strategy Tendency to give a lot of false trading signals in a sideways trending market. In a fast moving trending market, sometimes, the retracement will not happen close to the ema crossover and you may see that you have missed a massive part of that trendy move and by the time a signal is given for you to enter a trade, the market at most times would have lost its steam anyway and you will tend to get stopped out frequently. The further away the retracements(pullbacks) happen away from the ema cross over, the less reliable the trading signal would be. This means “A” retracement is much more reliable than “B” retracement and “B” retracement is much more reliable than “C”. Additional Floor Trader’s Entry Technique The original floor trader’s method specifically talks about entering on the failure of a retracement when the high or a low of the candlestick prior to the present one is intersected. That’s one way to look at it. However, we can take this a bit further by using reversal candlesticks to time our trade entries. Did you enjoy this? It would mean the world to me if you shared it:
Raven’s trend trading strategy is based on a combination of a moving averages channel with a direction indicator and oscillators.Input parameters:Currency pairs: anyTimeframe: M1-H4Bidding Time: AnyRisk management: choose a lot size so that the risk is no more than 2-5% of the deposit per transactionIndicators Used:T&C Wonders;Heiken Ashi;LWMA (20, close)LWMA (60, close)CCI WoodieTrend indicator Signals indicating the opening of a purchase:a white up arrow appeared;the price closed above the moving averages channel;Haken Asha's bar is white;CCI Woodie indicator line in white;Trend indicator bars are white. Signals indicating the opening of a sale:a red down arrow appeared;the price closed below the moving averages channel;Haken Ashi's bar is red;CCI Woodie indicator line in red;Trend indicator bars in red. Setting stop loss and take profit:Stop loss is recommended to be set above / below the previous local maximum / minimum;a take profit order is recommended to be set at a ratio of 2: 1 to stop loss or use a trailing stop. It is recommended to close the position when an arrow appears in the opposite direction.
Trading systems based on fast moving averages are quite easy to follow. Let's take a look at this simple system. Currency pairs: ANYTime frame chart: 1 hour or 15 minute chart.Indicators: 10 EMA, 25 EMA, 50 EMA. Entry rules: When 10 EMA goes through 25 EMA and continues through 50 EMA, BUY/SELL in the direction of 10 EMA once it clearly makes it through 50 EMA. (Just wait for the current price bar to close on the opposite site of 50 EMA. This waiting helps to avoid false signals). Exit rules: option1: exit when 10 EMA crosses 25 EMA again.option2: exit when 10 EMA returns and touches 50 EMA (again it is suggested to wait until the current price bar after so called “touch” has been closed on the opposite side of 50 EMA). Advantages: it is easy to use, and it gives very good results when the market is trending, during big price break-outs and big price moves. Disadvantages: Fast moving average indicator is a follow-up indicator or it is also called a lagging indicator, which means it does not predict future market directions, but rather reflects current situation on the market. This characteristic makes it vulnerable: firstly, because it can change its signals any time, secondly – because need to watch it all the time; and finally, when market trades sideways (no trend) with very little fluctuation in price it can give many false signals, so it is not suggested to use it during such periods.