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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Tweezers Candlestick Pattern

What it is:

The tweezers candlestick pattern is a formation that always involves two candles. At a tweezers top, the high price of two nearby sessions are identical, or very nearly so. Conversely, a tweezers bottom occurs when the low price of two sessions are nearly identical.

How it works (Example):

For simplicity, I will describe the tweezers bottom, but the same principles also apply (in reverse) to a tweezers top.

In some instances, the tweezers bottom is formed by two candlestick bodies that make an identical low. In other cases, the lower shadows of two nearby candles touch the same price level before the stock then bounces higher. A third possibility is that the lower shadow of one day and the real body of a nearby session hit the same bottom level.

The illustration of the tweezers candles below illustrates one of these three possibilities:

Most traders are familiar with a double bottom or double top -- a forecasting formation that applies to Intermediate-term reversals. For this formation to occur, the chart should generally show at least fifteen trading days between the two tops or bottoms.

The tweezers pattern is analogous to a very short-term double top or double bottom. Essentially, the tweezers candles indicate that prices held twice at the exact same level. At the bottom, sellers were not able to push the stock lower. At the top, the bulls were unable to drive prices higher. Therefore, tweezers signify very short-term support and resistance levels.

Tweezers sometimes occur on two consecutive trading sessions. In these cases, they are relatively easy to spot. However, they can also occur several sessions apart -- say, six to ten. (If they are spread further apart than that, then the formation is beginning to approach the double bottom or top described above.) When the tweezers occur consecutively, their forecasting value is even stronger. Why? Because, in these cases a bullish or bearish move has been stopped in its tracks and is more likely to reverse.

As with any candle formation, traders should carefully watch the price action that occurs immediately after the tweezers candles. If the tweezers bottom is to be a meaningful reversal, then the low formed by the two candles should hold. If the bottom is penetrated, then prices are likely to descend to at least the next important support level. The opposite is true for a tweezers top. The chart below, demonstrates a tweezers top in the Nasdaq Composite.  


 

Why it Matters:

Tweezers candles are a fairly infrequent occurrence. When they do happen, however, tweezers generally spotlight high-probability trading opportunities. By recognizing this candle formation, traders will have a much easier time extracting money from the market.