What is the Tweezer candlesticks formation in Forex?

Forex traders commonly use candlestick charts to keep track of price movements. The Japanese have used them since the 1700s to trade the financial market. But they gained attention and fame in other parts of the world after Steve Nison published a book, The Japanese Candlesticks Charting Techniques. Mr. Nison introduced the tweezer pattern in the candlestick chart. He then identified the tweezer top and bottom in this book. 

Tweezers emerge when the market price for the asset or forex pair is changing direction. Trend traders use them as trade signals when analyzing the market.

The candles’ bodies form resulting from the difference between the asset’s opening and closing price. While the wick indicates the price high and low during that period.

A red or dark candle implies that the closing price is lower than the price at the start of the day. A green or white candle, on the other hand, means the opening price for that day is lower than the closing.

What is a tweezer in a forex candlestick chart?

Tweezers are candlestick patterns in forex charts that signal a reversal in the ongoing trend.

It is identified by two candles that emerge when a trend is reaching its end. These two candles would have equal highs or lows, depending on the trend. The candlesticks can form in any color, red or green, and they usually emerge in charts of smaller time frames.

These tweezers can form in an uptrend or downtrend market. It is called tweezer tops if it shows up in an uptrend, meaning a reversal is in sight. If it emerges in a downtrend, traders refer to it as tweezer bottoms.

We will examine how it forms in a forex price chart in this article and how to trade the opportunities it offers.

What is a tweezer top?

The tweezer top is a downtrend reversal pattern spotted on top of a bullish trend. It shows two candlesticks with equal highs and lows at the top.

A tweezer top emerges during an uptrend market when prices have risen to a peak and can not rise any higher.

How to recognize a tweezer tops

Two or more candlesticks must be present in succession.

The market must be in an uptrend condition.

Both candlesticks must be on equal high points.

Watch out for candles standing at the same high level in an upward trending market. These will be the tweezer tops on your chart.

These points imply that the price can not climb higher than that point because BUYERS are not willing to pay above that price.

So the SELLERS have gained control and are now causing the price to drop.

The two candles forming at the same point signifies that the bullish trend may be pausing for a little bit, or it may have reached its end. A bearish market condition may be starting.

Signs of a reliable tweezer tops

A tweezer top that appears when prices have climbed very high is reliable. 

With a strong tweezer top, the first candle’s body is larger than the second. The second candle body should be shorter.

The tweezer top is sometimes followed by another reversal pattern in the charts. This proves the reliability of such tweezer tops.

How does tweezer top form?

A tweezer top emerges in bullish or uptrend market conditions. Prices have reached a new high. The BUYERS are not willing to push the price higher than that.

Two candles appear on the same level at the top of the uptrend once this happens.

These candles signal that prices have peaked and a reversal in the bullish trend is underway.

The SELLERS then take control of the market after this, causing the price to drop.

Sometimes, this is a temporary trend reversal, and the price makes a rebound. But more often, it leads to a new opposite trend. That is a bearish or downward trend.

How to use tweezer tops to place trades in forex

Support and resistance levels are essential when using tweezers to trade in the Forex market.

For tweezer tops, the resistance points are what traders should look for.

It is the point where the new high sees rejection and can not increase further.

A tweezer top helps the trader identify a possible reversal in the uptrend. With the Fibonacci tool, the trader finds the resistance point in the chart. This is the point where the price stops increasing. 

The trader can then wait for the resistance fully establish itself before placing a SELL trade here.

Sometimes, the tweezer top signals a short-term reversal in the ongoing trend. The trader must carry out their analysis to determine the length of the price rebound. 

The other tweezer is called the tweezer bottom, and we’ll discuss that below.

What is a tweezer bottom?

The tweezer bottom is the reverse of the previously discussed tweezer top.

It occurs in a bearish market condition and signals the end of the trend or a short-term reversal in the prices.

When prices have reached the lowest point, SELLERS reject the new low, leading to a turning point in the market.

Two candlesticks emerge below at an equal level to indicate this, known as tweezer bottom.

How to identify a tweezer bottom

• There will be at least two candles back to back, standing at equal levels at the bottom of the price chart
• The market must be in a downtrend condition
• Both candles must be standing at the same low points. 
• In a bearish or downtrend market, the two candlesticks having the same lows are your tweezer bottom.

The candlesticks signify that the SELLERS could not accept a price below the current low. This forms the new support point and indicates that the trend might be making a temporary stop or totally changing direction. 

These signs indicate a reliable tweezer bottom:

• It should form when prices are reaching new lows
• The first candle’s body must be fatter and taller than the second. 
• Like the tweezer top, the tweezer bottom is also accompanied by another reversal pattern. This proves its reliability for traders.

How the tweezer bottom forms in the forex chart

The tweezer bottom appears in a bearish or downtrend market. When the price of the forex pair fall so low, and the SELLERS are not able to accept a lower price, it forms a new support level.

The tweezer bottom forms as the BUYERS take control of the market and the price changes direction.

Two candles emerge on the same low level once this happens. 

These candles indicate that the prices have reached the lowest, and a reversal will occur soon.

How does the tweezer candlestick pattern work?

Tweezers can appear in two different forms, depending on the trending condition. 

They often signal a change in the direction of the price movement. Sometimes tweezers indicate a pause in the current trend.

They tend to emerge quite often on a price chart. Therefore, the trader needs proper analysis using other indicators to determine the right trading move.

The tweezer top materializes when the price highs of two candlesticks show up at the same or near the same top level. This happens after the price rises in an uptrend. 

Conversely, the tweezer bottom shows up when the price lows of two candlesticks occur at the same or almost the same bottom point. It usually emerges in a downtrend market.

The first candlestick should be larger than the second. The second candlestick can be any typical size, though it must be smaller than the first. 

The second smaller candle shows that the trend had weakened after making an insistent move the previous day. It means that the momentum has slowed, and traders should take notice of this.

Other chart patterns that confirm the tweezer pattern

The tweezer top and bottom are usually accompanied by other reversal patterns, as we’ve mentioned.

These patterns signal a change in the prevailing trend. 

Below, we describe these patterns and their significance:

Tweezer top

Bearish engulfing pattern

The bearish engulfing pattern indicates that the asset’s price is about to drop.

This pattern comprises one green or white candlestick above, with a big red or black one that accompanies it below. The red or black candlestick then “engulfs” a smaller candlestick stick above it.

This indicates that there are more SELLERS than BUYERS in the market now, and the SELLERS are forcing the price to drop.

How to recognize a bearish engulfing pattern

The bearish engulfing pattern shows up once an uptrend is coming to a halt. 

It is identified by a smaller first candle that gets overtaken by a bigger second one in the chart.

The implication is that the price is making a downward shift.

The opening price of the second candle would be much higher than the closing price of the first. 

Or the close of the first candle is much lower than the opening price of the second.

The pattern is more reliable if the down candle is much bigger than the top one. And the price move should be significant. Otherwise, it signifies a ranging condition.

It is ideal to wait for the second candle to close before placing a trade using this pattern. Then enter a short position once the bearish engulfing pattern shows up. You should then put a stop-loss on top of the highs of the two candle bars.

Of course, this pattern should not be the only consideration when placing a trade. Look for other indications, such as the tweezer top and others. The bearish engulfing pattern forms often and may not be a reliable signal if the trend is strong.

Dark cloud cover pattern 

This is another pattern that confirms the reliability of a tweezer top.

It is identified by a down red or black candle that opens on top of the close of the previous up green or white candle. The down candle then closes below the middle of the top one.

These movements indicate a price shift from upward to downward. The pattern appears as a top candle is accompanied by a down one. Ideally, the third candle is the confirmation of this reversal in price. 

The second black candle is the large black one that forms a “dark cloud” over the first one. It means that SELLERS have taken over the market and are pushing the price down.

These signals are a possible downward trend in the price of that forex pair.

The pattern is only reliable if it emerges in an uptrend market condition or following a surge in the currency pair price. Prices rise to a peak, and the pattern shows a possible decline ahead.

Features of a dark cloud pattern 

1. It forms in an ongoing uptrend market.
2. A top candle appears in the uptrend 
3. The candle is followed by a pause the next day
4. A downtrend candle appears within the pause
5. The down candle closes below the middle of the uptrend candle
6. The candles’ bodies are long, and the wick is short or non-existent. 

All of these show that the price change was significant. It is wise to wait for a third down candle, which confirms the reversal. The trader can then place a trade once they see this confirmation. 

These two reversal patterns often accompany the tweezer top and strengthen its reliability for traders.

For the tweezer bottom, here is a reversal pattern that may be seen with it:

Bullish engulfing pattern

A bullish engulfing pattern is a white candle that opens below the previous day’s closing price and closes above the previous day’s opening price. It means the price of the forex pair at the close of the day’s trade is higher than the previous day’s opening.

Watch for a big white candlestick that shows an uptrend and follows a small black candle indicating a downtrend. That’s how you identify the pattern. The big white follows the small black the next day and “engulfs” or overwhelms its body.

It is the opposite of a bearish engulfing pattern and forms in a downtrend market.

The pattern combines two candles, a dark candle and a big hollow one.

The opening price starts lower than the previous day. But the BUYERS soon fully take over, pushing the price higher, so that it climbs above the previous day’s high. 

The white candlestick should have a small wick at the top or no wick at all, Meaning that the price rose very high at the close of the previous day’s trade.

The small or non-existent wick at the top of the candle tells traders that another candlestick will emerge that closes higher than that. Also, a black candle can possibly form after this. The patterns signal a reversal in the prevailing trend.

The importance of tweezers in forex price charts

Effective indicators 

Tweezers are useful for indicating potential price correction or trend reversal. They guide traders in making the accurate move once a trend starts to slow down or change direction. 

Useful alongside other indicators 

Traders use tweezers with other indicators to confirm the market direction.

Can confirm price highs and lows

Tweezer tops help confirm that the price of the forex pair has reached a higher high. Tweezer bottom verifies that the price has declined to a new low. These are useful for making trading decisions.

Confirms trend continuation 

If a tweezer is spotted, and the price did not move in the expected direction, it is an indication that the trend is continuing its initial path. One can easily determine the accurate stop-loss level because of this.

Forex trading strategy with tweezer candlestick pattern and RSI indicator

Relative strength Index indicators are effective indicators that show the state of the market trends. Traders use it to determine the overbought and oversold prices in the chart.

This indicator is sometimes combined with the tweezer candlestick pattern to identify trading opportunities. 

 A trading strategy that combines both indicators for a successful trade should show the RSI at the overbought or sold zone. 

The chart should show a tweezer bottom pattern if the RSI is on the oversold area.

This is a strong signal to enter a LONG trade, as the price has reached a lower low. It signals a rise in the price might be underway.

If the RSI gives an overbought signal and the chart shows a tweezer top, it is a good time to take a SHORT position. Prices might soon fall, and the market will go into a downtrend.

Conclusion

Tweezer candlestick patterns are extremely useful in forex trading. They can be combined with several other indicators, and they provide accurate information about the state of the ongoing trend. Even if they fail, they give traders useful insights regarding appropriate stop-loss levels.

We hope this guide helps you understand how to identify and use them for more successful forex trading.

Frequently Answered Questions