Candlestick trading has been around since the 18th century in Japan and has become one of the most popular types of charts modern traders use to analyze data. There are many different types of patterns that occur in candlestick trading, such as the Tweezer Top and Tweezer Bottom patterns. How do you identify Tweezer Top and Tweezer Bottom patterns in candlestick trading?
The Tweezer Top and Tweezer Bottom patterns are a type of reversal pattern seen in candlestick trading composed of two candles. They are mainly identified by:
- Two candlesticks touching the same bottom or top
- The second candlestick eliminates or reverses the trend of the previous candlestick
While that’s the simple answer, trading Tweezer patterns can be tricky, and they have some nuances you should be aware of. We’ll go into their types, how to identify them, how to trade with them, and much more in greater detail below.
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Table of Contents
Types of Tweezer Patterns
There are two types of Tweezer patterns, Tweezer Top and Tweezer Bottom. They each signify a different direction or “feel” in the market.
Tweezer Top
The Tweezer Top is a bearish pattern seen when the market closed on a high top, but the Tweezer shows the next candlestick reversing the trend of the first.
Tweezer Bottom
The Tweezer Bottom is the same, but opposite, as the Tweezer Top. It is a bullish pattern seen when the market closed on a low bottom and the second candlestick shows a reversal going back up.
How to Identify Tweezer Top and Tweezer Bottom Patterns in Candlestick Trading?
Tweezer patterns can be easy to spot, but they also have certain nuances that you’ll need to know to identify them properly. The most common and useful types of Tweezer patterns are when they happen between the close of the market and the opening the next day.
However, they can also occur during the day, though this type has less predictive power.
Construction of Tweezer Patterns
Tweezer patterns are composed of:
- Two consecutive candlesticks (often between the close and open of the next day)
- Both candles staying at the same top or bottom
- A significant reversal of trend
Key Characteristics of Tweezer Patterns
Both the Tweezer Top (bearish pattern) and Tweezer Bottom (bullish pattern) can be identified by looking at the same characteristics.
The four main criteria for a Tweezer pattern are:
- The market should have an established trend
- The first candle should have a large full-body (the full-body includes the wick of the candle)
- The second candle must show an elimination or reversal of the first candle’s movement
- Both candles should not cross the same top or bottom
How to Interpret Tweezer Top and Tweezer Bottom Patterns?
Tweezer patterns can have good predictive capability. However, if you’re going to be using Tweezer patterns for your candlestick analysis, there are some things you should know:
- They tend to be more volatile than other patterns, such as the Harami pattern
- They don’t always actually signify a reversal
The second point is important—just like other candlestick patterns, Tweezer patterns should never be taken in a vacuum. All a Tweezer pattern shows on its own is a significant change in the attitude of the market.
This is good information to have, but you should also combine and verify it with other methods to improve its reliability, which we’ll discuss in the section below.
How to Improve the Reliability of Tweezer Top and Tweezer Bottom Patterns?
Remember that the Tweezer pattern, both top and bottom, is not enough on its own to signify an actual reversal. Always take it into consideration with other indicators in order to verify the trend.
Use a Verification Candle
The first verification you should be looking for when looking at Tweezer patterns is the third verification candle. It’s a very simple method where you just include the third consecutive candle of the pattern to strengthen the trend.
For example, if you see a Tweezer Top pattern occur between two trading days, wait to make sure the third candle continues that bearish trend downwards.
Verify with RSI Figures
RSI evaluations are something you should be using to verify any pattern, Tweezer included. RSI stands for “Relative Strength Index” and essentially measures the overall strength of a trend one way or the other. Make sure the RSI is pointing in the same direction as the Tweezer pattern would predict.
For example, if you identify a Tweezer Bottom pattern and the RSI is reading under 30 (indicating that it is being undersold), then you have two good points of verification for a bullish trend.
How to Trade Tweezer Top and Tweezer Bottom Patterns in Candlestick Trading?
Tweezer patterns are included in a wide variety of trading strategies. However, if you want to use a Tweezer pattern as the focus of your strategy, we’ll discuss how below.
Capitalize on Tweezers with Verifications
This method uses a Tweezer pattern as its primary indicator of reversal and accompanies it with strong verification indicators. It’s important to include as many verifications in this strategy as you can.
Market Environment
Relatively stable markets are the best option for trading on Tweezer patterns. Because of their stability, the Tweezer pattern’s occurrence has more predictive power. More volatile markets often see Tweezer patterns occur more frequently without reversing because the sentiment of a volatile market is more indecisive in general.
Identify and Confirm Trade Opportunity
Once you spot the Tweezer Top or Tweezer Bottom pattern occurring, gather as many other verification indicators as you can, including the verification candle and RSI figures we discussed above. The more verifications you have, the more confident you can be about the trend.
Determine Trade Entry, Stop Loss, and Take Profit Levels
Entering the trade at the right time is a balancing act. You want to enter as soon as you can, but you also want to wait for enough verification to be confident a reversal is occurring. At the least, wait for the third verification candle before deciding to enter the trade.
If it is a Tweezer Top pattern, then:
- Wait for the price to drop below the second candlestick
- Take a short
- Place your stop at the peak of the second candle
If it is a Tweezer Bottom pattern, then:
- Wait for the price to rise above the second candlestick
- Take a long
- Place your stop at the bottom of the second candlestick
Execute and Manage Trade
Managing this trade is fairly easy. The stops will help ensure you never lose undue money. However, watch and make sure you didn’t falsely identify a reversal.
Advantages and Limitations of Trading Tweezer Top and Tweezer Bottom Patterns
While Tweezer patterns have their place in trading candlesticks effectively, there are also some things you should take into consideration before jumping into a trade on one.
Advantages of Trading Tweezer Top and Tweezer Bottom Patterns
Listed below are the primary advantages of trading the tweezer top and tweezer bottom patterns –
- Fairly easy for beginner traders to identify
- Can span between trading days and still remain effective
- Provides easy stop orders
Limitations of Trading Tweezer Top and Tweezer Bottom Patterns
Listed below are the primary limitations of trading the tweezer top and tweezer bottom patterns –
- Can’t effectively predict on their own
- Not very useful in volatile markets
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Conclusion: Tweezer Top and Tweezer Bottom Patterns in Candlestick Trading
When it comes to trading with candlestick charts, you have a lot of different patterns you can choose to predict from. Tweezer Top and Tweezer Bottom patterns are a great addition to your toolkit.
Remember that the two main characteristics to look out for when identifying Tweezer patterns are:
- Two candlesticks touching the same bottom or top
- The second candlestick eliminating or reversing the trend of the previous candlestick
Also remember when using Tweezer patterns that you will need further verification before you should execute a trade, such as a verification candle and RSI score.
Now that you know how to identify Tweezer patterns, how to verify them, and a good strategy to employ them, you’ll be able to add this useful pattern to your trading toolkit!
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