Tweezers are one of the double candlestick patterns, which signals a price reversal. Just like the others, we have a bearish and a bullish version, called Tweezers Tops and Tweezers Bottoms. The Top ones are bearish and therefore suggest an uptrend is coming to an end, while the bottom tweezers suggest the opposite.
Requirements: Tweezers are formed by two opposite candles (a bearish and a bullish one), which have the same highs and lows. And they also require the market to be in a distinctive short-term or long-term trend. It is also not compulsory that the body of the candles are of similar size. There can be more than two candlesticks taking part in the formation of the tweezer pattern, but they must have matching highs or lows.
A perfect scenario of a Tweezer formation involves that the size, tops/bottoms, and shadows of the two candles are very similar. There could also be some variations. For example, the first candle does not necessarily have to be matching the previous market tendency which is bullish in an uptrend or bearish in a downtrend, also the second candle is not mandatory to be the opposite of the trend but if they are, that would make the tweezer pattern stronger i.e., higher the probability of price reversal.
In trading terms what this pattern showcases that at the wick of the first candle in an uptrend, the buyers have been overpowered by the sellers. The second candles shadow then shows a second attempt by the buyers to push the price higher, but the sellers manage to push the price lower as they seem to have gained control over the market after two unsuccessful attempts by the buyers to prevail.
Candlestick patterns like tweezers are no exception in appearing frequently in the financial markets. Based on overall conditions and other factors, they can be unimportant or trade worthy.
Tweezers occur during a pullback when an overall trend is in place which signals a potential entry point. It indicates that the price is likely to move in the trending direction again and thus the pullback is over. By using tweezers in this manner- entering on pullbacks in alignment with the overall trend- the success rate for these patterns improves.
A stop loss can be placed below the tweezers’ lows for a bottom pattern and a stop can be placed above the tweezers’ highs for a top pattern. It must be considered that the target must be based on other factors, such as the trend and overall momentum as Tweezers do not provide a profit target.
Figure: Using Tweezers to Enter on a Pullback in Alignment with Longer-Term Trend.
(Image by Sabrina Jiang © Investopedia 2021)
In the above figure, the trend is up, so when bottoming tweezers occur in a pullback, it marks a potential entry (blue circle). The orange horizontal line marks the stop level, placed just below the lows of the pattern. While using the tweezers candlestick, Stop usually are particularly useful as they can be set close to the entry point. It protects the trader from big losses if the security goes the other way.
To help spot tweezers, overall trend analysis along with other indicators must be used to help finding the point where it makes sense to trade them. Traders usually find it appealing and get trade signals when tweezers occur near major support or resistance levels. This helps in the conclusion that the prices are likely to move away from the area.