Technical analysis is an important part of being well prepared to make an investment in cryptocurrencies, or trade crypto for a profit. The study looks at past price movements and uses the information to attempt to predict future price action with improved accuracy.
The study of technical analysis is a vast practice, with hundreds upon hundreds of chart patterns, Japanese candlestick patterns, trading indicators, trend tools, and much more. Learning it all can be intimidating to approach. But not every pattern is as important as the next.
In this guide, we are looking at an essential reversal candlestick pattern called the tweezer candlestick pattern, which appears as both a tweezer top and tweezer bottom. We’ll also explain how to properly identify and how to trade the tweezer top pattern.
What Are Tweezer Candlestick Patterns? All About The Tweezer Top And Tweezer Bottom Reversal Patterns
The tweezer candlestick chart pattern is a two-candle Japanese candlestick pattern that gets its name from resembling a pair of tweezers. The appearance of a tweezer top formation or tweezer bottom formation often precede a major shift in momentum and corresponding change in trend direction.
The pattern was introduced by author and trader Steve Nison who brought Japanese candlesticks to the Western world in his book Japanese Candlestick Charting Techniques. They primarily appear at market-turning points and indicate a possible price reversal. The most important factor in a valid tweezer candlestick pattern is that two candles back to back appear at a roughly the same low or similar high, depending on the prior trend.
The formation of tweezer patterns can appear as part of the structure of other candlestick patterns, such as the engulfing pattern, harami, dark-cloud cover, doji, etc.
What Does A Tweezer Candlestick Tell The Crypto Market?
The appearance of a tweezer candlestick pattern tells the market that price could continue to struggle and foretells a possible change in price direction is coming. If the pattern has formed at an important support level or resistance level, it can present an ideal trading entry for crypto traders.
Trade-worthy setups can be further confirmed with trading tools like the Relative Strength Index, Stochastic, MACD, Bollinger Bands, and other technical indicators.
How To Identify The Tweezer Top Patterns And Tweezer Bottom Patterns?
There are two different types of tweezer candlesticks that either form at a swing high or swing low, making one a top pattern and the other a bottom pattern. Here is a closer look at how to identify each type of tweezer pattern.
Bearish Tweezer Top Pattern Guidelines
The bearish candlestick pattern must form at the top of an uptrending market. The first candle is bullish, while the second candlestick is bearish. The signal is even stronger when the second bearish candle engulfs the first bullish candlestick.
Bullish Tweezer Bottom Pattern Guidelines
The bullish candlestick pattern must form at the bottom of a downtrending market. The first candlestick is bearish, while the second candle is bullish. The signal is even stronger when the second bullish candle engulfs the first bearish candlestick.
Tweezer Candlestick Pattern Examples In The Crypto Market
Since there are two different types of tweezer candlestick patterns – tweezer tops and tweezer bottoms – we wanted to provide a clear example of each occurring in the crypto market.
Bearish Tweezer Top Pattern Example
Tweezer tops are always a bearish reversal pattern that appear at the end of an uptrend. The name of the pattern represents the fact that it is a topping pattern in crypto. The tweezer top candlestick pattern is confirmed when additional bearish candles follow the pattern and the bearish trend increases to form a downtrending market.
Bullish Tweezer Bottom Pattern Example
Tweezer bottoms are always a bullish reversal pattern that appear at the end of a downtrend. The name of the pattern represents the fact that it is a bottoming pattern in crypto. The tweezer bottom candlestick pattern is confirmed when a bullish candle follows the pattern and a bullish trend continues to rally with increased volume and bullishness.
How To Trade The Tweezer Top Candlestick Pattern Using Margex Trading Tools
Picking the right platform to trade at is necessary to success. The innovative Margex margin trading platform offers built-in technical analysis tools and popular trading indicators from TradingView to help traders scan for tweezers or other candlestick patterns and react accordingly.
Follow these 4 simple steps to trade the tweezer top pattern using Margex trading tools.
Step 1 - Open the Bitcoin (BTC) chart, and scan the price action for any tweezer top patterns. Be sure to focus on tweezer top patterns that form after the market has been uptrending, as these signals are more likely to confirm.
Step 2 - After finding the pattern according to the above image, patiently wait for confirmation of the trend-reversal pattern before taking a position. The pattern is valid once price moves in the opposite direction of the prevailing trend. At this point, place a sell order.
Step 3 - Place a stop loss order above the real body of the tweezer top pattern. A looser stop-loss strategy would entail placing the stop loss above the wick instead of the candle real body and will prevent getting stopped out on a pullback.
Step 4 - Plan ahead for profit-taking at key resistance or support zones, based on previous price action or Fibonacci retracement and extension levels. Congratulations, you have traded a tweezer top pattern!
The Advantages And Disadvantages Of The Tweezer Top And Bottom Patterns: Pros, Cons, And Limitations
Like any trading tool or pattern, there are pros and cons, advantages and disadvantages, and even limitations, with the tweezer candle pattern.
Tweezer tops are easy to discover and identify. Since the pattern is only a two-candle Japanese candlestick pattern, there aren’t a lot of conditions necessary for proper identification. It looks similar to a tweezer in shape.
Tweezer tops and bottoms, when valid, tell the market that the resistance or support level is too strong and must reverse in the opposite direction.
Tweezer tops and bottoms are somewhat subjective. Traders commonly allow too large of variation between the size of each candle, which must have roughly the same high and same low.
Tweezer patterns are two candle patterns where the second candle initiates a change in a trend. Because the trend change occurs following the second candle, traders can often miss the peak or trough of a move due to the lateness of the signal compared to the actual reversal.
Tweezer patterns can often be mistaken for other types of Japanese candlestick patterns such as the harami, doji, and more.
Tweezer Candlestick Patterns vs. Other Trend Reversal Patterns
The tweezer top pattern often gets compared to other trend reversal patterns in terms of effectiveness.
Here is a comparison with many other popular chart patterns used to trade cryptocurrencies.
Tweezers Top vs. Head And Shoulders Pattern
The head and shoulders pattern is another common trend reversal chart pattern. As a chart pattern and not a candlestick pattern like the tweezer, head and shoulders patterns take place across a larger number of candles.
A head and shoulders is characterized as having three peaks, with the middle peak the largest to resemble the appearance of a head and two shoulders. The pattern is confirmed when price breaks down from the right shoulder through neckline support.
Much like tweezer tops can also appear as tweezer bottoms at the bottom of a downtrend, head and shoulders can also form upside down at the bottom of a trend and are called inverse head and shoulders patterns.
Tweezers vs. Morning And Evening Stars
Tweezers are two candlestick chart patterns, while morning stars and evening stars are three candlestick patterns. All of these patterns are commonly found at the point of a reversal.
A morning star is characterized as having a large black or red candle down, a doji, then a large white or green candle up. The bottom-most candle is a cross-shaped doji signaling indecision in the market before a strong reversal.
An evening star is characterized as having a large white or green candle up, a doji, then a large black or red candle down. The top-most candle is a cross-shaped doji signaling indecision in the market before a strong reversal.
Tweezers Bottom vs. Three White Soldiers
Three white soldiers is a less common Japanese candlestick pattern in crypto, but a powerful pattern nonetheless.
It is a three-candle pattern where there are three roughly the same size white or green candlesticks in a row, hence the name. Because there are three moves in the same direction, traders must beware of a strong pullback before the pattern eventually confirms.
The bearish counterpart to the three white soldiers pattern is called the three black crows and instead features three back or red candlesticks of roughly the same size in a row.
The tweezers top pattern is a fairly common candlestick pattern, but because of its close resemblance to other candlestick patterns and strict conditions under which tweezer bottoms or top pattern forms, there are often lingering questions that newcomers might have.
As such, we have prepared this tweezers candlestick pattern FAQ:
Why is it called a tweezer?
The pattern is called a tweezer because it looks similar to a tweezer in shape. The pattern consists of two Japanese candlesticks at roughly the same size with a similar high and similar low.
What does a tweezer top pattern mean?
A tweezer top pattern is a sign that a move higher has met resistance and possibly failed, potentially resulting in a powerful price reversal in the opposite direction of the prevailing trend. It tells the market that price can no longer continue in that direction without gaining more momentum, and instead price will retest support lower.
Is tweezer top bullish?
No. A tweezer top is a bearish pattern as it appears at the end of an uptrend in the crypto market and other financial instruments. There is a bullish version, called the tweezer bottom. A tweezer bottom appears at the end of a downtrend ahead of a potential price reversal.
Where can I trade tweezer patterns?
It is possible to trade tweezer candlestick patterns at the innovative Margex margin trading platform. Margex offers long and short positions with up to 100x leverage and some of the deepest liquidity around.
How to trade tweezer patterns?
Trading the tweezer pattern is simple when you have built-in technical analysis tools from Margex on your side. Crypto traders can scan the price charts of popular cryptocurrencies and look for tweezer patterns. Once identified, follow the four simple steps above to trade the tweezer chart pattern effectively.
Any tips for trading the tweezer top pattern?
Tweezer top and bottom patterns are most effective when used in conjunction with other indicators, support and resistance, volume, and more.