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Useful Things You Need To Know About Tweezer Top Candlestick Pattern

InvestorEducation / Technical Analysis Jun 19, 2022 - 09:35 PM GMT

By: Steve_Barker

InvestorEducation

The tweezer top candlestick pattern was popularized by Steve Nison in the West through his book ‘Japanese Candlestick Charting Techniques’. Tweezers have varied in appearance, but there are certain traits that they have in common. Their appearance at market-turning points makes it possible to use them for analysis purposes. At times, they specify the likelihood of a reversal. When the price direction of an asset changes, it is known as a reversal.

These candlestick charts have been used by the Japanese to trade commodities since the 17th century. They monitor the prices of commodities in an aesthetically pleasing manner.


Recognizing The Tweezer Top Pattern

This is a reversal pattern that is bearish in nature and is formed when an uptrend ends. It is made up of two candlesticks; the first one must be a bullish candlestick and the second a bearish one. The high of both the candles must be approximately the same. The low of both the candlesticks needs to be one or the top-bottom. While applying the tweezer top pattern, you first need to identify an uphill trend in the price. This pattern also indicates that the uptrend has reached its high point and there is no scope for going further.

Bullish and Bearish Candlesticks

Bullish and bearish candlesticks get their names from their shapes. A bullish candlestick is green and it opens on a low and closes on a high. The bearish candlestick is red and opens on a high and closes on a low. An uptrend causes a bearish tweezer top with the bulls taking the price higher. In this case, the day closes near the highs.

Understand the Tweezer Top Pattern

The tweezer top pattern is formed after an upward trend. On the first day, you see a bullish tweezer top trend which seems to be a continuance of the current uptrend. On the second day, the bearish candle’s high comes up against resistance. The bulls bring about a rise in the prices but there is no willingness to buy at higher prices. The candles at the top which have approximately the same high are a sign of how strong the resistance is. They are also an indication of the probable reversal of the uptrend to form a downtrend. The formation of the bearish candle on the second day confirms the bearish reversal. 

Understanding the Market from the Tweezer Top Candlestick Pattern

Every candlestick pattern is different and has its own indications of the market. The tweezer top pattern is formed after a bullish trend and this leads to bullish market sentiment. Due to the buying pressure, the market is pushed higher up. It is easy to understand the market trends using the tweezer top candlestick pattern if it is clearly understood. Since there is an overbuying trend, people are scared of the market turning around. This increases the selling pressure preventing the market from going any further.

Whenever buyers bring the market up to the previous high, sellers are all set to bring it back to a low. As the investors perceive that the market cannot reach its previous high, they feel that the upward trend is ending. People start selling in bulk which further brings the market down giving it a negative trend.

Trading the Tweezer Top  

A tweezer top trend is usually the end of an uptrend. Unfortunately, it is not well-grounded enough and cannot be used on its own. Most investors need to use some conditions or filters to avoid bad trading. It is important to ensure that the pattern is traded on a framework and time where it works well. One of the ways to determine if it works is by backtesting it before investing. Backtesting provides you with a history of how well it has worked on the previous occasions that it has been used. There are a few more methods that can help you in avoiding bad trades.

Volume

When you add volume to your trading, you are adding information to your analysis. Volume not only gives you a fair idea of the way the market moved but also the idea behind it. A high volume is indicative of a lot of market activity. It, therefore, becomes more significant. It is, however, noted that a pattern or strategy is likely to work better if the volume is low.

Overbought and Oversold Readings

Momentum indicators used in strategies tell you if the market is oversold or overbought. These terms are used for markets that have either risen too high or too low. An overbought market pushes it to heights from which it is bound to turn downwards. An oversold market pushes it to such unprecedented lows that there is a great likelihood of it turning to the upside. Most of the time, in an overbought condition, there are more chances of it getting better as it is a reversal signal.

A thorough study and technical analysis of the tweezer top candlestick pattern is very helpful in avoiding a bad trade. For people who are interested in the stock market, a clear understanding of this candlestick pattern is very essential. It will not only help you avoid major financial disasters and pitfalls but also bring you great profits in your financial transactions. Even a layman can understand the basics without going into too much technical detail. So go ahead and familiarize yourself with these concepts and make some great profits from your trades. 

By Steve Barker

© 2022 Copyright Steve Barker - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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