Tweezer Top and Bottom Candles
Tweezer candles are a technical analysis pattern that usually involves two candles signaling either a market top or bottom, where the current trend of the asset can reverse. This article looks at how to read tweezer candles. For more, read about Heikin-Ashi Candles.
Understanding Tweezer Candles (the “Pincer” Tops and Bottoms)
Tweezer patterns are among the best reversal candle patterns. They occur when one or more candles touch the same low level for the bearish tweezer pattern, or when two or more candles touch the same high for the bullish tweezer pattern.
Tweezer bottoms are considered short-term bullish reversal patterns, while tweezer tops are believed to be bearish reversals.
With both patterns, the cause is the same: buyers or sellers are unable to push the top or bottom any further, and both pattern types require close observation and analysis to interpret and use correctly.
A bearish tweezer top during an uptrend occurs when bullish speculators push prices higher and often close the day near the highs, which is generally considered a strong bullish signal.
On the next candle, traders reverse their market sentiment: the market opens without breaking above the previous candle’s high and heads straight down, which often wipes out most of the previous candle’s gains.
On the other hand, a bullish tweezer bottom forms during a downtrend when bearish speculators keep pushing prices lower and close the candle near the lows, usually within a strong downtrend.
Once again, the second candle acts as the reversal: price opens without breaking below the previous day’s low and turns sharply upward, and this upward move in the second candle can quickly erase the losses from the previous trading candle.
The Shape of Tweezer Candles
The bullish tweezer pattern has the same bottom level, except that it occurs at the end of an uptrend, making it a bearish reversal pattern: the first candle is bullish and continues in the same direction, while the second, bearish, candle signals that the trend may soon change.
Both the bullish and bearish patterns are only valid when they occur during uptrends and downtrends, because their appearance during choppy trading conditions has little practical meaning and simply points to the market’s hesitation to move in either direction.
As reversal patterns, tweezer candles are very popular among traders looking for clues about when the market might change direction. Reversals can offer a favorable risk-to-reward setup, and entering earlier in the move generally means more of the potential range is still ahead, though outcomes are never guaranteed.
That’s why tweezer candles are a popular tool for gauging market sentiment and reading information from candlesticks, even though the trend can continue despite their appearance — which happens more often than not, since no pattern is perfect. The appearance of the second candle simply indicates that the opposing force is strong and has taken control on one side.
There are different variations of tweezer candles: the first candle can be very strong, while the reversal candle is a doji or another candle that doesn’t look as strong as the first one.
How to Trade the Bullish Tweezer Pattern
Bullish tweezer candles appear at the bottom of a downtrend. In the example below, EUR/USD price action on the daily chart had been moving downward for a long time, recording a series of lower highs and lower lows.
Looking at the bullish tweezer candle at the bottom, the first candle is a strong bearish candle signaling that the downward move will continue. The second candle, however, forms a new short-term low before rallying upward and erasing almost all of the losses from the previous candle.
After the pattern forms, bullish speculators can build on the gains made during the second candle’s timeframe and eventually push price action higher, fully reversing the trend.
In this particular case, we’ll see a very strong bullish candle that adds to the overall upward move of the tweezer bottom pattern — confirmation that the reversal was very strong.
Trading the bullish tweezer isn’t very different from trading other bullish reversal candle patterns. For entries, you need to wait for the pattern to complete and be confirmed before entering a trade.
The stop loss is always placed below the most recent low, since a new low would invalidate the pattern. Take-profit orders should be calculated based on other technical indicators, always aiming to secure at least twice the number of pips risked on the stop loss.
How to Trade the Bearish Tweezer Pattern
Unlike the bullish tweezer, the bearish tweezer candle pattern — one of the negative candle patterns — occurs at the top of an uptrend, making it a bearish pattern. In the example below, we again have a daily EUR/USD chart, but this time the initial trend is upward.
As shown below, there is a very strong uptrend of around 800 pips. At the top, price action gaps higher and continues in the same direction, but despite the strong trend, the next candle is a large bearish candle whose body is almost double the size of the previous candle’s body.
As shown above, the previous candle’s gains weren’t just engulfed — the gap was also filled. This type of bearish tweezer is considered very strong because of the second candle’s shape, and it points to a notably elevated chance of reversal.
Our entry would be where the second candle closed. The issue here can be the size of the second candle: since it’s about 200 pips from the top and the stop loss, to be realistic the take-profit level should be roughly double that.
So we need to use different types of analysis to work out where the reversal might end, and given the strength of the uptrend, the reversal is likely to be strong as well.
Finally, we’ll use the start of the uptrend as a reference point for taking profit — the bears could end up erasing all of the bulls’ previous gains and even breaking through support.
This is a longer-term trade because the ranges involved are wide. In this case, we risked around 200 pips and gained about 500 pips, a risk-to-reward ratio of 2.5:1.
Before you start trading live markets, we strongly recommend practicing with virtual funds on a demo account first, until you’re comfortable trading volatile markets. This way, you prepare yourself better and protect your capital before you feel ready to trade live. [AFF-CTA: pending]
Conclusion
As a trading approach, tweezer candles give traders a way to read potential turning points when working with market trends. While tweezers can take a variety of forms, they all share two common traits:
- They sometimes appear at market turning points, and these candlestick patterns can be used for analysis and simply to flag the possibility of a reversal.
- They are used within a broader market-analysis context to provide trading signals for trend traders.
Tweezer patterns are also defined by the candle body, which forms from the difference between the open and close, while the thin shadows on either end of the candle mark the high and low reached during that period.
A red candle usually indicates the close was below the open, while a green candle shows the closing price was higher than the open. As with any other trading tool or indicator, tweezer candles should be used alongside other indicators to confirm market signals.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. Trading forex and CFDs with leverage carries a high level of risk and may not be suitable for all investors; you can lose more than your initial deposit. The candlestick patterns discussed above are analytical tools, not guarantees, and past performance does not predict future results. This page may contain affiliate links, and we may earn a commission if you open an account through them, at no extra cost to you.
التعليقات مغلقة.