A tweezer is a technical analysis pattern, commonly involving two candlesticks, that can signify either a market top or bottom. … A hammer is a candlestick …
Identifying the current forex market with candle patterns is important. You’ll notice that candle patterns vary a lot. Tweezer Candlesticks are helpful for those keen on long-term strategies and price behavior. In this blog post, we’ll discover more about this pattern.
What is Tweezer Candlestick Formation?
Reversal pattern analysis has been a puzzle to many FX trading market investors since it is a very important technical analysis method. Forex market trends are always changing, making some investors unprepared to react, causing large or small losses. Several types of reversal candlestick patterns exist, but the tweezer pattern is one of them. An indicator of reverse trading can be found in it. Candlesticks of opposite colors are commonly used in the tweezer pattern. They are similar in length to the other candlesticks or even longer. There is usually this pattern at the end of a trend (high or low). Market reversals are signaled by it. Making profitable trades is possible with it.
Different Types of Tweezer Candlesticks
Tweezer Top Formation
An upward trending market results in a Tweezer Top candlestick pattern. Two candlesticks make up this chart – a Bullish Candle and a Bearish Candle. There are two candlesticks, the first is benign and the second is bearish.
There is a similar high on both tweezer candlesticks.
Tweezer Bottom Formation
The Tweezer Top candlestick pattern occurs when the market is trending upward. This chart contains two candlesticks – a Bullish Candle and a Bearish Candle. First, there is a benign candlestick, and then there is a bearish candlestick.
Tweezer candlesticks have similar highs.
How to Interpret Tweezer Patterns?
In search of clues as to when the market will reverse direction, traders use tweezers as reversal patterns. We may be given an opportunity during a reversal due to their excellent risk/reward ratio.
Therefore, tweezers are popular tools for interpreting candlesticks and gauging market sentiment. However, the trend may continue in the same direction despite the presence of tweezers, which is more than normal, given that no pattern is perfect, the appearance of the second candle signaling the growth of the opposing force in the game.
In a tweezer bottom, the bottom cannot be pushed further, whereas the top cannot be pushed higher or lower. For both patterns to be understood and used correctly, close observation and research are required.
Bulls often push prices higher inside an uptrend, resulting in tweezer tops (generally considered bullish signals). Traders reverse their market sentiment on the following (second) day of the trading period. The market tends to drop without breaking the prior day’s highs.
Trade the Tweezer Top Pattern
It’s a bearish pattern that appears at the peak of an uptrend. The example below shows bullish trend on a daily EUR/USD chart.
The bullish trend is extremely powerful, as you can see. Immediately following the gap at the top, the price action continues to move upward. Although the next candle has a solid powerful trend, it has almost double the body of the prior candle, which is highly bearish.
The gap was also filled in, erasing the prior candle’s gains. Since the second candle has a very strong shape, this type of bearish tweezer is very likely to reverse.
The day’s second candle represents our entry point.
To determine where the reversal may end, we use different types of analysis. A powerful reversal is likely, given the strength of the bull run. To finish, we take profit at the beginning of the bull trend.
Trade the Tweezer Bottom Pattern
On the flip side, a bullish tweezer bottom is realized during a downtrend when bears continue to drive prices lower, closing the day near lows (usually a strong bearish trend). Again, Day 2 is a reversal, as prices open, do not breach the prior day’s lows, and head sharply higher. A bullish advance on Day 2 can quickly eliminate losses from the previous trading day.
As talked earlier, the bullish tweezer occurs at the bottom of a downtrend. The EUR/USD price action on the daily chart had been moving lower for a longer time, as a series of lower and lower highs was recorded.
Suppose you look at the bullish tweezer at the bottom. In that case, the first candle is a strong, powerful bearish candle that signals the continuation of the downside move. However, the second candle prints a new short-term low before surging higher to erase almost all losses in the prior session.
Going forward, the bulls can build on the gains made during the second candle’s timeframe and ultimately push the price action higher, completely reversing the trend.
Our entry is where the second candle closed the day.
In this case, we see a solid bullish candle that further adds to the overall bullishness of the tweezer bottom candlestick pattern. This is, among other things, the reason the reversal was compelling.
What are the Pros and Cons Using Tweezer Top and Bottom Patterns?
Here are some pros of the top and bottom tweezers patterns:
- Traders can use tweezer patterns to position themselves at the forefront of a new trend by predicting price reversals.
- There is a reliable way to explain buyer and seller sentiment using the tweezer pattern.
- The accuracy of other indicators and methods is improved by tweezer patterns from a necessary support and resistance level.
- Integration with other indicators is easy with this trading strategy.
Also, there are some downsides to using tweezers at the top and bottom:
- Two candles alone can’t indicate trend reversal. Price reversals are highly likely when volatility is added.
- Tweezer patterns may not work if they form against major trends.
- It does not matter how volatile or uncertain the market is, tweezer patterns persist.
- The tweezer pattern’s accuracy can be increased by using other indicators besides the tweezer pattern.
Combine with Other Signals
Financial traders recommend using multiple methods to improve the chance of making a trading entry. You can catch trends early by using tweezer patterns.
Tweezers tops appear at swing highs as bulls leave the market and bears take over. Tweezer bottoms at swing lows are the opposite. Investors can manage their trades by closing a profit on a trade and moving the stop-loss to break even. The tweezer trading technique can be highly profitable when combined with other signals like support, resistance, market condition, volume, or trend.
Traders love candle patterns because they are simple, elegant, and easy to interpret. Markets will always show “patterns” no matter how they evolve. Combining multiple candlesticks, the tweezer top and bottom indicate a trend reversal at the end of an upward or downward trend, respectively. Observing and researching tweezer top and bottom patterns closely is important to understand how they work and how they can be used properly.