Doji, Spinning Tops, and Tweezer Patterns

In the world of trading, not every signal is about a clear trend reversal. Sometimes, the market doesn’t know which direction to take next, and that’s where patterns like Doji, Spinning Tops, and Tweezer Patterns come into play. These candlestick patterns indicate indecision and give traders a heads-up that the current trend might be losing strength, potentially leading to a reversal or continuation.

In this chapter, we’ll break down these three candlestick patterns, explain how they work, and show you how to use them to make better trading decisions. Let’s start with the Doji, the classic symbol of market uncertainty.

1. Doji: A Sign of Market Indecision

The Doji candlestick pattern is a key indicator of market indecision. It forms when the opening and closing prices of a stock are almost equal, resulting in a candle with a very small body. The long wicks on either side show that the price fluctuated throughout the session but ended up right where it started, indicating neither buyers nor sellers had control.

How to Spot a Doji

• The body of the candlestick is very small or nonexistent, indicating the opening and closing prices were nearly the same.
• It can have long upper and lower wicks, representing price movement during the session.
• The Doji can appear after an uptrend, downtrend, or during consolidation, signalling indecision or a potential reversal.

Reference of the Doji Candlestick

A Doji by itself doesn’t guarantee a reversal, but it does suggest the market is uncertain. Let’s dive into an example to see how this plays out in real-world trading.

Example: Doji in Infosys

Image Courtesy: Tradingview

Suppose Infosys has been in a strong uptrend, but then a Doji forms, indicating indecision. The stock’s price fluctuated throughout the day, but the closing price ended up nearly the same as the opening. This tells traders that the market might be losing momentum, and a reversal could be near. However, traders would look for confirmation from other indicators before acting.

While the Doji signals indecision, another pattern that indicates similar uncertainty but in a slightly different way is the Spinning Top.

2. Spinning Tops: Balance Between Buyers and Sellers

A Spinning Top is similar to the Doji in that it indicates market indecision, but it has a larger body. It forms when the opening and closing prices are close, but there’s a significant range between the high and low prices. This pattern suggests a tug-of-war between buyers and sellers, with neither side gaining a clear advantage.

How to Spot a Spinning Top

• The body is small but larger than a Doji’s and is located near the middle of the candlestick.
• There are long upper and lower wicks, showing that the price moved significantly during the session, but the final outcome was indecisive.
• Like the Doji, Spinning Tops can appear in uptrends, downtrends, or during periods of consolidation.

Reference of the Spinning Top Candlestick

Spinning Tops often signal that a current trend is losing strength and may reverse or pause. Let’s look at an example of how a Spinning Top could impact trading decisions.

Example: Spinning Top in Tata Motors

Image Courtesy: Tradingview

For Example, Tata Motors is in a downtrend, but then a Spinning Top forms. The stock’s price fluctuated throughout the day, but it closed near its opening price, showing that neither buyers nor sellers could dominate. This signals that the downtrend might be losing strength, and traders should watch for potential signs of a reversal or continuation before making their move.

Spinning Tops and Dojis both indicate indecision, but what if we see a pattern that shows clear attempts to reverse a trend? That’s where Tweezer Patterns come into play.

3. Tweezer Patterns: Signals of Potential Reversal

Tweezer Patterns consist of two candles, often appearing at the top of an uptrend or the bottom of a downtrend. They suggest a possible reversal and are formed when two consecutive candles have nearly identical highs (Tweezer Top) or lows (Tweezer Bottom). The name "Tweezer" comes from the fact that the candles resemble the shape of a pair of tweezers.

Tweezer Top

• This pattern forms during an uptrend and consists of two candlesticks with nearly identical highs.
• It suggests that the buyers pushed the price up, but sellers pushed back, preventing further gains.

Tweezer Bottom

• This pattern forms during a downtrend and consists of two candlesticks with nearly identical lows.
• It signals that sellers pushed the price lower, but buyers stepped in to hold the line, suggesting the downtrend may be over.

Reference of Tweezer Top and Bottom Candlestick

Tweezer Patterns often signal an imminent reversal, making them valuable for spotting changes in trend direction. Let’s explore an example to see how this works in practice.

Example: Tweezer Top in Reliance Industries

Image Courtesy: Tradingview

Suppose Reliance Industries has been in a steady uptrend, but then two consecutive candles form with nearly identical highs, creating a Tweezer Top. This signals that buyers have pushed the price as high as it can go, and sellers are starting to take control. Traders might interpret this as a sign that the uptrend is over and a bearish reversal is coming.

Tweezer Patterns are particularly effective when confirmed by other indicators, such as volume or support and resistance levels. Now that we’ve covered these three patterns, let’s discuss how to use them effectively in your trading strategy.

How to Use These Patterns Effectively

While Doji, Spinning Tops, and Tweezer Patterns each indicate market indecision or potential reversals, they’re most effective when combined with other technical indicators. For example:

• A Doji near a strong support or resistance level adds weight to the possibility of a reversal.
• A Spinning Top followed by a strong volume increase can confirm that the trend is about to change.
• Tweezer Patterns, especially when seen with declining volume or approaching a moving average, can give traders added confidence in a trend reversal.

Using these patterns alongside other tools helps traders confirm the signals and avoid false positives.

Conclusion

Candlestick patterns like the Doji, Spinning Tops, and Tweezer Patterns are vital tools for understanding market indecision and spotting potential reversals. Whether you’re trying to identify a slowing trend or a potential market shift, these patterns provide valuable insights into buyer and seller dynamics. When combined with other indicators, such as volume and support/resistance levels, they become even more powerful in guiding trading decisions.

Now that you’ve learned how to recognise these patterns, you can start using them to anticipate changes in market sentiment. Keep an eye out for Dojis signalling indecision, Spinning Tops marking a pause, or Tweezer Patterns hinting at an upcoming reversal—they’re all clues to where the market might be heading next.