In technical Analysis, candlestick patterns help traders understand the price action and offer valuable insights into potential reversals and trend continuation. Among these, the Tweezer Top and Tweezer Bottom patterns are simple yet powerful tools that identify potential trend reversal patterns of an ongoing trend. It is recognized for its reliability and efficiency.
In this article, we will cover the Tweezer Top and Tweezer Bottom candlesticks, their structure, the candlestick psychological pattern, their key characteristics, how to trade them with an example, and common mistakes to avoid while trading them.
What are Tweezer Candlestick Patterns?
The Tweezer Candlestick Pattern indicates potential reversal patterns that occur at the end of a trend using a two-candlestick formation. They are of two types:
- Tweezer Top: Two consecutive candles with the same or nearly the same high price spotted at the top of an uptrend, indicating the potential bearish reversal.
- Tweezer Bottom: Two consecutive candles with the same or nearly the same low price spotted at the bottom of a downtrend, indicating potential bullish reversal.
Tweezer Top Pattern
Structure:
- First candlestick: A large bullish body candlestick is formed, indicating a continuous ongoing uptrend, displaying the buyer’s strength over the trend.
- Second Candlestick: A bearish candlestick is formed that opens at the high of the first candle, suggesting that the upward momentum is weakening as sellers step in, leading to a potential bearish reversal.
Psychology Behind the Tweezer Top Candlestick Pattern
- Bullish Candlestick: At the current uptrend of the security, the buyers are dominating and are driving the price to its high, indicating further upward movement.
- Sellers take control, and Trend Reversal: The second candlestick opens at the high of the first candlestick, and at the start, sellers step in aggressively, seeing an opportunity to reverse the uptrend.
At the same time, buyers attempt to defend against the low, but sellers ultimately overpower them, driving the price downward and taking control over the trend, resulting in a strong bearish candle formation and indicating a reversal in the ongoing uptrend.
How to Trade Tweezer Top Patterns
The Tweezer Top candlestick pattern is versatile across all securities markets and across all timeframes.
Entry:
- As the second candle closes bearish, plan for a short entry on the opening of the following candle.
Stop-loss:
- Place the stop-loss at the high of the Tweezer Top candlesticks pattern.
Target:
- The primary target can be the nearest resistance line.
- The target can be set based on your preferred risk-reward ratio, depending on your trading strategy.
Example Scenario:
In the image below, you can see the chart of “Varun Beverages Ltd” stock at a 1-hour timeframe from 2nd January 2025. You can see the sell signal generated using the Tweezer Top candlestick pattern, as it is a trend reversal candlestick pattern.
Tweezer Bottom Pattern
Structure
- First candlestick: A large bearish body candle is formed, indicating the continuous ongoing downtrend, displaying the seller’s strength over the trend.
- Second Candlestick: A bullish candlestick is formed that opens at the low of the first candle, suggesting that the downward momentum is weakening as buyers step in, leading to a bullish reversal.
Psychology Behind the Tweezer Bottom Candlestick Pattern
- Bearish Candlestick: At the current downtrend of the security, the sellers are dominating and are driving the price to its low, indicating further downward movement.
- Buyers take control and Trend Reversal: The second candlestick opens at the low of the first candlestick, and at the start, buyers step in aggressively, seeing an opportunity to reverse the downtrend.
At the same time, sellers attempt to defend against the high, but buyers ultimately overpower them, driving the price upward and taking control over the trend, resulting in a strong bullish candle formation and indicating a reversal in the ongoing downtrend.
How to Trade Tweezer Bottom Patterns
The Tweezer Bottom candlestick pattern is versatile across all securities markets and across all timeframes.
Entry
- As the second candle closes bullish, plan for a long entry on the opening of the following candle.
Stop-loss
- Place the stop-loss at the low of the Tweezer Bottom candlesticks pattern.
Target
- The primary target can be the nearest support line.
- The target can be set based on your preferred risk-reward ratio, depending on your trading strategy.
Example Scenario
In the image below, you can see the chart of “Varun Bevrages Ltd” stock at a 1-hour timeframe from 13th November 2024. You can see the buy signal generated using the Tweezer Bottom candlestick pattern, as it is a trend reversal candlestick pattern.
Key Characteristics
- Same high or low: As the tweezers are identical, they share the same high or low, in a very few cases, a small difference.
- Occurs after the trend: Both the tweezer top and the bottom occur after a trending market, as the profit booking starts and the volume starts showing volatility about the market.
- Confirmation: As the majority of traders look for confirmation, such as a lower close or a higher close than the previous candle, along with volume in the market, for confirmation following the third candle.
Common Mistakes to Avoid
- Ignoring the Trend: Traders often underestimate two-candle patterns and end up trading against the trend due to overconfidence in their strategy or the previous loss made trade.
- Forcing the pattern: Not all with the same highs or lows or a very small difference are tweezer candles; to make a profit, forcing yourself to say that it is a tweezer pattern is of no use, which might end up in a loss-making trade.
- Neglecting Volume: The whole market stands on demand and supply; ignoring volume is a vital mistake, as the volatility hits, it ends up in a lost trade.
In Closing
In this article, we explored the Tweezer Top and Tweezer Bottom candlesticks, their structure, the candlestick psychological pattern, their key characteristics, how to trade them with an example, and common mistakes to avoid while trading them.
Tweezer top and bottom candlestick patterns may seem simple, but carry a considerable role when spotted in the right context for some good profit. As both candles are reversal patterns, they give you an early indication of the upcoming market trends, allowing you to plan an early entry with a small stop loss.
As with any technical tool, tweezer patterns are most effective when used in combination with broader analysis, along with your risk management and a clear trading strategy to execute the trade.