Tweezers Provide Precision for Trend Traders

Steve Nison, the man largely credited with popularizing candlestick charting in the West, introduced the tweezers bottoming and topping pattern in his book "Japanese Candlestick Charting Techniques." Tweezers can take on varying appearances, but all have a couple of traits in common. Sometimes, they appear at market-turning points and can be used for analysis purposes. They may simply indicate the possibility of a reversal. They can also be used within a broader context of market analysis to provide trade signals for trend traders.

The Japanese have been using candlestick charts to trade commodities since the 17th century. The charts remain a popular and visually appealing way to monitor prices. The candle's body is created by the difference between the open and close, while the thin "shadows" on either end of the candle mark the high and low over that period. A dark or red candle means the close was below the open, while a white or green candle shows that the price closed higher than it opened.

Key Takeaways

  • A tweezers topping pattern occurs when the highs of two candlesticks occur at almost exactly the same level following an advance.
  • A tweezers bottom occurs when two candles, back to back, occur with very similar lows.
  • Like many other candlestick patterns, tweezers occur quite frequently.
  • Tweezers are more meaningful as part of other trends, especially pullbacks.

Indication of Shift in Trend Direction

Tweezers are both a topping and bottoming pattern—patterns that indicate a shift in trend direction. However, a broader context is usually needed to confirm the signal since tweezers can occur frequently. A topping pattern occurs when the highs of two candlesticks occur at almost exactly the same level following an advance. A bottoming pattern occurs when the lows of two candlesticks occur at almost exactly the same level following a decline.

Tweezers work best when used along with other technical analysis tools and signals.

There are additional criteria. The first candle should have a large real body (the difference between open and close). However, the second candle can be pretty much any size. Therefore, the two candles may look quite different. For example, in a tweezers top, the first candlestick may be a strong-up candle, closing near the high. On the other hand, the second candle may be a Doji—a cross-shaped, neutral candlestick pattern—that doesn't close near the high but still has a similar high to the first candle.

The premise behind this being a topping or bottoming pattern is that the first candle shows a strong move in the current direction. In contrast, the second candle pauses or even slightly reverses the previous day's price action. A short-term shift in momentum has occurred, and traders should be aware of it.

Figure 1 below shows two circles drawn on the chart—one blue and one green. The larger green circle marks a classic tweezers bottom. There was a move lower, a strong down candle, and a subsequent candle with almost exactly the same low. The small second body indicates less selling interest than the previous candle.

The small blue circle is a tweezers topping pattern. However, ideally, the first upward candle should be slightly larger to show a true shift in momentum from the first candle to the second.

Figure 1. Tweezers Top and Bottom.

Image by Sabrina Jiang © Investopedia 2021

Tweezers are among a variety of chart patterns that traders can use to anticipate a potential change in trend direction. The Technical Analysis course at the Investopedia Academy includes video content and real-world examples. They can help you spot possible reversals and become a more effective trader.

Importance of the Pattern

Tweezers that take the structure of another reversal candlestick pattern are especially noteworthy. For a topping pattern, the bearish engulfing pattern and dark-cloud cover (explained below) are prime examples. For a bottoming pattern, a bullish engulfing pattern and a piercing pattern are important to watch. These candlesticks may not always appear as tweezers (similar highs and lows). When they do, it adds more importance to the pattern.

Figure 2. Bullish Engulfing Bottoming Tweezers.

Image by Sabrina Jiang © Investopedia 2021

A strong up bar followed by a hanging man or shooting star candle is also a noteworthy reversal pattern. However, the price should make a close below the second candle's real body within the next couple of candles.

An equivalent bottoming pattern would be a strong down candle followed by a hammer. On a third or fourth candle, a close above the hammer body would establish a strong case that a short-term bottom has formed.

Figure 3. Tweezers With Strong Down Bar Followed by Hammer.

Image by Sabrina Jiang © Investopedia 2021

The hammer in Figure 3 isn't ideal—the body could be a bit smaller and close nearer to the high. Given that it's also a tweezer, we can conclude that this is a potential turning point. Within two bars after the tweezers, the price closes above the hammer, indicating that the price is likely to continue higher in the short term.

Trading Tweezers

Candlestick patterns can frequently occur in financial markets, and tweezers are no exception. Based on overall conditions, their appearance can be unimportant or trade-worthy.

Suppose that an overall trend is in place, then tweezers occur during a pullback. That signals a potential entry point. The pattern indicates that the pullback is over. Now, the price is likely to move in the trending direction again. By using tweezers in this manner—entering on pullbacks in alignment with the overall trend—the success rate for these patterns improves.

For a bottom pattern, a stop loss can be placed below the tweezers' lows. For a topping pattern, the stop can be placed above the tweezers' highs. Tweezers do not provide a profit target, so the target must be based on other factors, such as the trend and overall momentum.

Figure 4. Using Tweezers to Enter on a Pullback in Alignment With Longer-Term Trend.

Image by Sabrina Jiang © Investopedia 2021

In Figure 4, the trend is up, so when bottoming tweezers occur in a pullback, it marks a potential entry (green circle). The red horizontal line marks the stop level, placed just below the lows of the pattern. Stops are particularly useful with tweezers because they can often be set close to the entry point. That usually means small losses if the security goes the wrong way.

Using overall trend analysis and other indicators will help spot tweezers at points on the chart where it makes sense to trade them. Tweezers that occur near major support or resistance levels also provide trade signals that may appeal to traders. Those patterns indicate that the support or resistance has helped. Now, the price is likely to move away from the area.

The Bottom Line

A tweezers top is when two candles occur back to back with very similar highs. A tweezers bottom occurs when two candles, back to back, occur with very similar lows. The pattern is more important when there is a strong shift in momentum between the first candle and the second. For trading purposes, these patterns are best used to indicate the end of a pullback, signaling a trade in the trend's overall direction. A stop-loss can be placed below a tweezers bottom and above a tweezers top.

However, no pattern is perfect, and a tweezers pattern doesn't always create a reversal. Use the candles that occur after the pattern to confirm short-term reversal signals. Practice both spotting and trading tweezers before initiating tweezers trades with real capital.

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