Stock market trading involves a lot of calculated decisions, especially if you are an intra-day investor. You need to look at several technical charts and analyse your investments. All this to increase your chances of booking a profit and mitigating risks associated with the fluctuating market. Professional traders rely on advanced candlestick patterns, which are also used extensively in several automated trading algorithms. Here’s all you need to know about candlestick charting – specifically, tweezer top and bottom candlestick patterns.
The tweezer patterns – an introduction
The tweezer pattern is simply a minor trend reversal pattern consisting of two candlesticks with virtually the same high or low variations. In this candlestick pattern, the highs and lows make for the most significant factors, as opposed to the shape of the candles. The trends indicate the possibility of reversal while analysing stocks. They may also be used to provide trade signals within a broad market analysis context.
What is the tweezer top pattern?
The tweezer top candlestick pattern is defined as a bearish reversal pattern featuring two candlesticks. It begins with a green candlestick, which appears on the first day when a stock is witnessing an uptrend. The second day also opens high, making an almost similar high as the first one.
Criteria to identify tweezer tops
Three factors help identify tweezer tops, including
1. The stock market, being on an existing uptrend
2. A solid green body observed on the first day
3. The formation of the red body on the second day, which has a similar high of the previous day
How to interpret the reading of tweezer top patterns
The second candle’s high indicates a resistance area. Even though the bulls seem to push the price upward, they are not willing to purchase above the highest rates. This results in the bears forcing their way into action, leading them to return with great force and drive down the price. Furthermore, the top-most candles with identical height demonstrate the strength of the resistance, indicating that the uptrend may pause or reverse and form a downtrend. The trend reversal is typically confirmed on the third day when bearish reversal candles are created.
What is the tweezer bottom pattern?
The tweezer bottom pattern refers to the bullish reversal pattern. In this candlestick pattern, the first day is marked by a red candlestick, at a time when a downtrend is in progress. Also, the second day’s low appears similar to the previous day.
Criteria to identify tweezer bottoms
The three factors that help identify tweezer bottoms include:
1. The stock market, being on an existing downtrend
2. A solid red body observed on the first day
3. The formation of the green body on the second day, which has a similar low of the previous day
How to interpret the reading of tweezer tops
The second candle’s low indicates a support area. Also, while the bears keep pushing the price down, they are not willing to make the sale below the lower price. As a result, the bulls step in to action and return with great force to drive the price upward. The identical low of both candles demonstrates the support strength, indicating that the downtrends may reverse or pause. The third day’s bullish reversal candle formation confirms the fact that the trend has reversed.
Both, tweezer top and bottom candlestick patterns typically take on various appearances but have a few common traits which generally appear at market-turning points. To know more about these patterns and gain expertise in stock trading, visit the Angel Broking website.