Steve Nison was largely praised for popularizing candlestick charts in the West. He introduced the bottom and top patterns of tweezers in his book “Japanese Candlestick Chart Techniques”. Tweezers can have different appearances, but they all have some common features. Sometimes they appear at turning points in the market and can be used for analytical purposes. They may simply indicate the possibility of reversal. They can also be used in a broader market analysis background to provide trading signals for trend traders.
Since the 17th century, the Japanese have been using candlestick charts to trade commodities. Charts are still a popular and visually attractive way of price monitoring. The main body of the candle is formed by the difference between the opening price and the closing price, and the fine “shadows” at the ends of the candle mark the highs and lows of the period. A black or red candle indicates that the closing price is lower than the opening price, while a white or green candle indicates that the closing price is higher than the opening price.
- When the highs of the two candlesticks appear at almost the same level after the rise, the tweezers top pattern will appear.
- When two candles have very similar low points back to back, the bottom of the tweezers will appear.
- Like many other candlestick patterns, tweezers appear frequently.
- Tweezers make more sense as part of other trends, especially callbacks.
Indication of a change in trend direction
Tweezers are both a top pattern and a bottom pattern—a pattern that indicates a change in the direction of a trend. However, a wider background is usually required to confirm the signal, as tweezers may appear frequently. When the highs of the two candlesticks appear at almost the same level after the rise, a top pattern will appear. When the lows of the two candlesticks appear at almost the same level after the decline, a bottom pattern will appear.
Tweezers work best when used with other technical analysis tools and signals.
There are other standards. The first candle should have a large entity (the difference between the opening price and the closing price). However, the second candle can be almost any size. Therefore, the two candles may look completely different. For example, at the top of the tweezers, the first candlestick may be a strong upward candle with the closing price close to the high. On the other hand, the second candle may be a doji-a cross-shaped neutral candlestick pattern-which will not close near the high point, but still has a similar high point as the first candle.
The premise behind this is that the top or bottom pattern is the first candle showing a strong trend in the current direction. In contrast, the second candle paused or even slightly reversed the price trend of the previous day. A short-term shift in momentum has occurred, and traders should be aware of this.
Figure 1 below shows two circles drawn on the chart-one blue and one green. The larger green circle marks the bottom of the classic tweezers. There is a lower, a strong falling candle, and a subsequent candle with almost the same low. The smaller second body indicates that the selling interest is lower than the previous candle.
The small blue circle is the pattern on the top of the tweezers. However, ideally, the first upward candle should be slightly larger to show the true momentum transition from the first candle to the second candle.
Tweezers are one of various chart patterns that traders can use to predict potential changes in the direction of a trend.This technical analysis Course in Investment Encyclopedia Academy Include video content and real-world examples. They can help you discover possible reversals and become a more effective trader.
Importance of model
The tweezers using another reversal candlestick pattern structure are particularly noteworthy. For the top pattern, the bearish engulfing pattern and the dark cloud cover (described below) are the main examples. For bottom patterns, bullish engulfing patterns and piercing patterns are important. These candlesticks may not always appear in the form of tweezers (similar highs and lows). When they do, it increases the importance of the pattern.
A strong ascending bar followed by a hanging man or meteor candle is also a notable reversal pattern. However, the price should close below the entity of the second candle in the next few candles.
An equivalent bottom pattern is a strong down candle followed by a hammer. On the third or fourth candle, a closing price above the hammer line will create a strong case indicating that a short-term bottom has been formed.
The hammer in Figure 3 is not ideal-the body may be smaller and closer to the high point. Given that it is also a pair of tweezers, we can conclude that this is a potential turning point. In the two bars after the tweezers, the price closed above the hammer, indicating that the price may continue to rise in the short term.
Candlestick patterns often appear in financial markets, and tweezers are no exception. Depending on the overall situation, their appearance may be unimportant or worth trading.
Assuming that the overall trend is in place, then tweezers appear during the pullback. This marks a potential entry point. This pattern indicates that the callback has ended. Now, the price may move in the direction of the trend again. By using the tweezers in this way-entering a callback based on the overall trend-the success rate of these modes will increase.
For bottom patterns, you can place a stop loss below the low of the tweezers. For the top mode, the stop loss can be placed above the high point of the tweezers. Tweezers do not provide profit targets, so targets must be based on other factors, such as trends and overall momentum.
In Figure 4, the trend is upward, so when the bottoming tweezers pull back, it marks a potential entry (green circle). The red horizontal line marks the stop loss, which is located directly below the low of the pattern. Stop losses are particularly useful for tweezers, as they can usually be placed near the entry point. If the securities go the wrong way, this usually means a small loss.
Using overall trend analysis and other indicators will help to spot tweezers at points on the chart that are meaningful for trading. Tweezers appearing near major support or resistance levels also provide trading signals that may attract traders. These patterns indicate that support or resistance helps. Now, the price may be far away from the area.
The top of the tweezers is when two candles appear back to back at very similar high points. When two candles have very similar low points back to back, the bottom of the tweezers will appear. This pattern is more important when there is a strong change in the momentum between the first candle and the second candle. For trading purposes, these patterns are best used to indicate the end of a pullback, indicating that trading is in the overall direction of the trend. The stop loss can be set below the bottom of the tweezers and above the top of the tweezers.
However, no model is perfect, and the tweezers model does not always produce a reversal. Use candlesticks that appear after the pattern to confirm short-term reversal signals. Before you start trading with tweezers with real capital, practice discovering and trading tweezers.