Getting a nice short signal from a spinning top

Spinning tops may also be used quite effectively to recognize a shift from an uptrend to a downtrend. Figure 6-17 is a chart of the futures contract on the Euro currency. A spinning top appears just as an uptrend is rolling over, which is a favorite situation of mine. The next day's high comes very close to penetrating the high of the spinning top signal day, but doesn't quite get there. The result is a downtrend that lasts almost a month.

Figure 6-15:

A long spinning top on S&P 500 futures contract that yields a nice profit.

Figure 6-16:

A long spinning top that fails.

Figure 6-16:

A long spinning top that fails.

Figure 6-17:

A short spinning top on Euro futures indicates the beginning of a downtrend.

Figure 6-17:

A short spinning top on Euro futures indicates the beginning of a downtrend.

To capitalize on the scenario presented in Figure 6-17, you would initiate a short position on the futures contract either near the close of the day on which the spinning top appeared or the next day, when the spinning top was validated by the fact that the day's high didn't violate the high of the previous day.

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