Tweezer Tops and Bottoms
In today’s article, we will discuss another set of candlestick patterns which are not very popular, but will yield profits for those traders who know how to use them. These are candlesticks known as Tweezers, and the two patterns to be discussed are the Tweezer top and Tweezer bottom. As the names imply, they signal the top and bottom of the price action, indicating when the market is due for a reversal.
The Tweezer Top candlestick formation is a double candlestick bearish reversal pattern whose appearance at the top of an uptrend signals that it is time for bearish reversal. The Tweezer Bottom on the other hand, is a double reversal candlestick formation whose appearance at the bottom of a downtrend is a signal that a bullish reversal is about to occur.
The Tweezer Top candlestick formation is made up of:
• A bullish candle which can be called the Day 1 candle, and which is made up of a long body and one shadow below the body.
• A bearish candle whose open price is the same as the closing price of the Day 1 candle, and whose closing price is below the open price of the Day 1 candle. This candle can be referred to as the Day 2 candle.
What happens here is that the bullish Day 1 candle is an indication of the prevailing uptrend, closing the day at highs but then sellers now enter the market and drive prices lower, eliminating the gains of the Day 1 candle. The close of the Day 2 candle below Day 1's opening price is an indication that the sentiment has changed to a bearish one, and it is not a surprise when prices fall from there in subsequent candles. Refer to the snapshot below:
In this snapshot, we can see the Tweezer top pattern which formed after a period of sustained uptrend, indicating the signal for the downside reversal.
The Tweezer Bottom candlestick formation is made up of two candlesticks:
• A bearish candle which can be called the Day 1 candle, and which has a long body with a small upper shadow and no lower shadow.
• A bullish candle whose open price is the same as the closing price of the Day 1 candle, and whose closing price is lower than the Day 1 candle. This candlestick is also called the Day 2 candle.
Here, the bearish Day 1 candle is bearish which indicates the prevailing bearish sentiment in the market, closing the day at lows but then buyers enter the asset and drive prices higher, erasing the gains of the Day 1 candle. The close of the Day 2 candle above Day 1's opening price is an indication that a bullish sentiment has taken over, and prices move higher indicating a bullish reversal.
In this example, we can clearly see the Tweezer bottom which has formed at the bottom of the down-trend to signify that the trend is about to change, which it promptly did.
As with most candlestick patterns, the best signals from the Tweezer patterns are achieved when they are combined with other indicators that indicate a reversal of momentum, such as the Stochastic indicator, with the oversold signal going with the Tweezer bottom for a bullish signal and the overbought signal going with the Tweezer top for a bearish signal.