A Trader’s Guide to the Tweezers Top Pattern

A tweezer top pattern is made up of two candles that convey a whole narrative of pause, rejection, and possible reversal. Learning candlestick patterns might be intimidating for those who are new to technical analysis. However, this tweezer top pattern is one of the simplest and most dependable bearish reversal signals to begin with. This blog discusses the tweezer top candlestick pattern and its key features.

What Does a Tweezer Top Candlestick Pattern Mean?

The tweezer top candlestick pattern is a two-line pattern, despite having more than two candles. It is a bearish reversal pattern by nature. Any candle in any colour or uptrend might make up the first line. The next candles might be any colour or style, but they must all be the same size.

The pattern suggests that a continuing rise may be coming to an end. The bearish tweezer might indicate a negative reversal when it shows up at the asset’s peak price level during an uptrend or at the conclusion of a bullish move inside a downtrend.

In essence, this pattern serves as a ‘ceiling’ price point that might ultimately cause a dramatic turnaround from the previous upward trend to the downward one.

Key Features of Tweezer Top Candlestick Pattern

1. First Candle

   To indicate that it is still in the upward trend, the first candle has to be bullish.

2. Second Candle

   It is a bearish candle, which is a neutral one and still legitimate, but less optimal. This indicates the beginning of a change in the market sentiment.

3. Price Level

   The price level is the high of the two candlesticks that must be the same or almost the same.

4. Chart Position

   The two consecutive candles must show up during a significant retracement or rebound in a downtrend, or at the peak of a continuing upswing.

Different Types of Tweezer Top Candlestick Pattern

There are a total of 6 variants or types of a tweezer top candle pattern, which are explained below:

1. Variants 1 and 2

   Two successive candlesticks with lengthy shadows and somewhat shorter true bodies make up the first variation. On the other hand, the second variation has two successive candles with significantly shorter shadows but long true bodies.

   However, the first variant probably offers a far stronger indication for upward trend reversals, even if both variations are legitimate formations.. This is because the first bullish candle’s extended top shadow already shows significant selling pressure, which is causing the price to close lower.

   The second bearish candle then makes another unsuccessful effort to break through this region of intense selling pressure. You can see the two tries and rejections at the peak in the first variation. In contrast to the second variation, which does not obviously indicate a significant region of selling pressure, this indicates the likely beginning of a bearish reversal.

2. Variants 3 and 4

   Variation 3 is also a bearish engulfing pattern, in which the second bearish candlestick covers or engulfs the whole range of the first bullish candlestick. This indicates the intensity of the second candle’s selling pressure. Due to this, the pattern is significantly more potent for possible trend reversals.

   Conversely, the fourth variation is known as an inside bar, in which the second candle’s whole range is covered by the first candlestick. An inner bar by itself indicates uncertainty about the trend’s future direction. Additionally, it needs a confirmation candle to determine if the pattern is continuing or reversing.

   On the other hand, a potential reversal signal is reinforced when the inner bar’s two successive candlestick patterns produce a comparable high.

3. Variants 5 and 6

   The fifth variation of a tweezer top pattern consists of a neutral candle or a doji. Although this tweezer top pattern is still useful, it is typically seen as a less trustworthy indication for trend reversals. This is because, in contrast to a bearish candlestick, a doji could just show a pause rather than a complete reversal. Furthermore, the volume does not indicate a distinct direction, regardless of whether it is above or below normal.

   Lastly, the sixth variation has a bullish candlestick as the first candle, followed by an inverted hammer or bearish pin bar. The extended upper shadow essentially indicates that it rejects higher pricing. However, the second candle’s volume has to be above normal because a low volume might simply indicate a temporary halt before the upward trend continues.

How Does a Tweezer Top Candlestick Pattern Form?

You can identify a tweezer top candle pattern, then you must see the following conditions:

1. You must see the formation of a green candle on the first day.
2. The price of a security or the stock market as a whole should be trending upward.
3. You should be able to see a red candlestick on the next day, which must show the previous day’s peak.

Significance of a Tweezer Top Candlestick Pattern

A tweezer top candlestick pattern is important since it can suggest a short-term price swing or trend reversal. These patterns can pluck out prices on a chart, much like a pair of tweezers. Here are the reasons why you should learn the tweezer top pattern:

1. This pattern confirms other reversal indicators.
2. A well-developed tweezer can aid in verifying the market.
3. A tweezer top fails when the subsequent candle reaches a new low, and it fails when a new high is reached immediately after completion.
4. In addition to being useful for stop loss placement, a failing tweezer pattern may indicate that the move is still ongoing.

Interpretation of Tweezer Top Candle Pattern

A tweezer top candlestick pattern appears when a particular asset or the market as a whole is trending upward. The first day will see the formation of a green bullish candlestick, which indicates an increase in the stock price.

A bearish candlestick’s peak the next day will indicate a certain level of resistance in that stock. This will demonstrate that there are more and more bulls in the market, and these figures are noteworthy. At the corresponding price level, they have no desire to buy more stocks. The highs of both top candles will be comparable, indicating some kind of resistance.

The stock price will begin to decline during the second day’s trading session when the resistance indicates a trend reversal. When a red candlestick forms, traders may receive confirmation of the bearish reversal.

Examples of Tweezer Top Candle Pattern

Example 1: Successful trend Reversal

In this situation, there was an obvious upward tendency before a tweezer top pattern developed. The two candlesticks meet the requirement of having roughly equal highs. After that, it effectively functioned as a bearish reversal signal with a subsequent downward trend. However, if you use tweezers top to inform any of your trading decisions, this is the optimal situation.

Example 2: Failed Trend Reversal

Comparing it with the previous example, a tweezer top pattern did not function as a reversal signal, even though we can also see an earlier upward price trend before its formation. This is true even if the two candlesticks met the pattern’s requirements. This illustrates the worst-case scenario and shows that this candlestick pattern is flawed and frequently fails.

It happens particularly when the full market context is not taken into account, as we shall address in the sections that follow.

Example 3: Indecisive Outcome

This is the situation when the pattern does not result in an uptrend or a decline.  Before the formation of a tweezer top pattern, there was a noticeable upward price trend. However, it caused the price to move sideways. This creates a distinct area of support and resistance, with the high of the tweezers top acting as the new resistance.

Final Thought

A tweezer top pattern is beneficial for both seasoned traders and beginners. However, you must first learn how to recognise it. You should not use it in isolation since it may give false indications. Thus, you must use it in conjunction with other indications.

Download the PL Capital Group – Prabhudas Lilladher application and open a Demat account for free. PL Capital also provides in-depth insights and data-driven research, which helps you to reach your financial objectives.

Frequently Asked Questions on  Tweezers Top Pattern

1. How to spot a tweezer top?

You need to recognise a two-candlestick pattern that appears at the conclusion of an upswing to detect a tweezer top. The two candles’ matching or almost matching highs are the crucial features, which show a resistance level that buyers are unable to overcome.

2. Which is the best time frame for tweezers tops?

You can use a tweezer top pattern on longer time frames, particularly on daily charts. Most retail and institutional traders or investors use this pattern as their regular chart setting.

3. How accurate is the tweezer top pattern?

The success rate of a tweezer top pattern is 56%. However, before making a trading choice, you also need to take other market aspects into account.

4. What are the disadvantages of tweezer tops?

The primary disadvantage of a tweezer top pattern is to spot the pattern. The stock market is often unstable, and it may be challenging to identify this pattern when the volatility is strong.