Tweezers Provide Precision for Trend Traders

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Tweezers Provide Precision for Trend Traders

The tweezers bottoming and topping pattern was featured in Steve Nison’s book “Japanese Candlestick Charting Techniques,” which is often credited with popularizing candlestick charting in the West. Tweezers may take on a variety of forms, but they all have a few characteristics. They sometimes arise around market turning occasions and may be utilized for market analysis. They might just hint that a reversal is possible. They may also be utilized to generate trade signals for trend traders in a larger framework of market research.

Since the 17th century, the Japanese have used candlestick charts to sell commodities. Price charts continue to be a popular and aesthetically attractive method to track pricing. The gap between the open and close creates the candle’s body, while the thin “shadows” on each end of the candle represent the high and low points throughout that time span. A dark or red candle indicates that the price closed lower than it opened, while a white or green candle indicates that the price closed higher than it opened.

Key Takeaways

  • A tweezers topping pattern happens when the highs of two candlesticks are almost identical after an advance.
  • A tweezers bottom happens when two candles with extremely identical lows occur back to back.
  • Tweezers, like many other candlestick designs, appear often.
  • Tweezers are more significant when combined with other patterns, particularly pullbacks.

Indication of Shift in Trend Direction

Tweezers are a topping and bottoming pattern, indicating a change in trend direction. However, since tweezers might occur often, a larger context is typically required to corroborate the signal. Following an advance, a topping pattern occurs when the highs of two candlesticks occur at almost the same level. A bottoming pattern happens when the lows of two candlesticks are almost identical after a downturn.

Tweezers are most effective when used in conjunction with other technical analysis tools and signals.

There are further requirements. The first candle should have a substantial actual body (the difference between open and close).The second candle, on the other hand, might be almost any size. As a result, the two candles may seem extremely different. In a tweezers top, for example, the first candlestick may be a strong-up candle that closes near the high. The second candle, on the other hand, may be a Doji—a cross-shaped, neutral candlestick pattern that doesn’t close near the high but still has a peak identical to the first candle.

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The first candle suggests a big move in the current direction, hence this is a topping or bottoming pattern. The second candle, on the other hand, stops or even somewhat reverses the previous day’s price motion. There has been a short-term change in momentum, and traders should be aware of it.

Figure 1 depicts two circles on the chart, one blue and one green. The bigger green circle represents a traditional tweezers bottom. There was a downward movement, a powerful down candle, and a second candle with about the same low. The tiny size of the second body implies that there is less selling interest than in the prior candle.

A tweezers topping design is represented by the little blue circle. However, in order to illustrate a meaningful change in momentum from the first to the second candle, the first upward candle should be somewhat bigger.

Figure 1. Tweezers Top and Bottom.

Image by Sabrina Jiang © Investopedia2021

Tweezers is one of many chart patterns that traders may use to predict a likely shift in trend direction. The Investopedia Academy’s Technical Analysis course contains video information as well as real-world examples. They may assist you in identifying potential reversals and become a more successful trader.

Importance of the Pattern

Tweezers with the structure of another reversal candlestick pattern are particularly notable. The bearish engulfing pattern and dark-cloud cover (described below) are good examples of topping patterns. A bullish engulfing pattern and a piercing pattern are critical to look for while looking for a bottoming pattern. These candlesticks are not usually shaped like tweezers (similar highs and lows).When they do, the pattern gains significance.

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Figure 2. Bullish Engulfing Bottoming Tweezers.

Image by Sabrina Jiang © Investopedia2021

A significant reversal pattern is a powerful up bar followed by a hanging man or shooting star candle. However, the price should close below the genuine body of the second candle during the following few of candles.

A powerful down candle followed by a hammer would be a similar bottoming pattern. A closure above the hammer body on the third or fourth candle would make a strong argument that a short-term bottom has developed.

Figure 3. Tweezers With Strong Down Bar Followed by Hammer.

Image by Sabrina Jiang © Investopedia2021

Figure 3’s hammer isn’t ideal—the body could be a little smaller and closer to the peak. Given that it’s also a tweezer, we may deduce that this might be a watershed moment. The price closes over the hammer two bars after the tweezers, suggesting that the price is likely to continue upward in the immediate term.

Trading Tweezers

Candlestick patterns are common in the financial markets, and tweezers are no exception. Their look might be inconsequential or trade-worthy depending on the overall circumstances.

If an overarching trend exists, then tweezers occur during a pullback. That indicates a possible entrance point. The pattern suggests that the downturn has ended. The price is now expected to return to the prevailing direction. The success rate for these patterns increases when tweezers are used in this manner—entry on pullbacks that are in line with the broader trend.

A stop loss may be put below the tweezers’ lows for a bottom pattern. The stop may be positioned above the tweezers’ highs for a topping pattern. Because tweezers do not specify a profit objective, the aim must be determined by other indicators such as the trend and general momentum.

Figure 4. Using Tweezers to Enter on a Pullback in Alignment With Longer-Term Trend.

Image by Sabrina Jiang © Investopedia2021

Because the trend in Figure 4 is upward, bottoming tweezers in a retreat indicate a possible entry (green circle).The red horizontal line denotes the stop level, which is located immediately below the pattern’s lows. Stops are especially handy with tweezers since they may often be put at the entrance site. If the security fails, this generally results in little losses.

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Using general trend analysis and other indicators will assist in identifying tweezers at places on the chart where they make sense to trade. Tweezers that appear around important support or resistance levels may also generate trading indications that traders may find appealing. Those patterns imply that the encouragement or opposition was beneficial. The pricing is now likely to shift away from the region.

The Bottom Line

A tweezers top occurs when two candles with nearly identical highs occur back to back. A tweezers bottom happens when two candles with extremely identical lows occur back to back. The pattern is particularly significant when there is a significant change in momentum between the first and second candles. These patterns are best utilized for trading purposes to signify the conclusion of a pullback, suggesting a trade in the trend’s general direction. A stop-loss may be set below and above the bottom of a tweezers.

No pattern is perfect, and a good pattern does not necessarily result in a reversal. To corroborate short-term reversal signs, use the candles that appear following the pattern. Before beginning tweezers trades with real money, practice both spotting and trading tweezers.

Investopedia does not provide tax, investment, or financial advice. The material is offered without regard for any individual investor’s investing goals, risk tolerance, or financial circumstances, and may not be appropriate for all investors. Investing entails risk, including the possibility of losing money.

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