A form of reversal candlestick pattern, tweezers signal a shift in the price trajectory of a stock. They are divided into two types: tweezer top and tweezer bottom. A tweezer top pattern occurs at the ending stage of an uptrend and, hence, is considered to be a bearish reversal pattern. On the other hand, a tweezer bottom pattern appears at the end of a downtrend and is therefore deemed to be a bullish reversal pattern.
In this article, we will take a closer look at tweezer bottom candlestick patterns, what they signify, how they are identified, and more.
The structure of a tweezer bottom candlestick pattern
This bullish pattern comprises two candlesticks. The first candlestick mirrors a bearish trend, whereas the second one exhibits a more bullish mood in the market, with the prices surging in the opposite direction. Typically, they come about when two candles consecutively crop with similar lows. Such reversal patterns are only accepted to be credible when they manifest during a period of downtrend. Their development during turbulent trading episodes is essentially worthless because of the market’s lack of movement in any direction.
Additional read: What is a doji candlestick
How to identify tweezer bottom candlestick patterns?
To identify a tweezer bottom candlestick pattern, you should look for the following characteristics.
- Two distinct candles on the chart: As was mentioned before, the tweezer bottom candlestick pattern is created with two specific candles. The first is bearish in nature—which marks a downtrend, and the second is a bullish one—which stands for an uptrend. The bullish candlestick opens at the same or similar level as the last candle’s low.
- Identical lows: Another telling sign of tweezer bottom candlestick patterns is that both candles show off identical or almost identical lows, forming a support level for the stock. This feature infers that the selling pressure has reduced, and the buyers are now taking the lead.
What does a tweezer bottom candlestick pattern indicate?
The formation of a tweezer bottom candlestick pattern spots bullish movements during a downtrend—implying that the pressure to sell has reached its limit and buyers have started to make their move. It is regarded to be valid when it is observed with high trading volumes after a protracted downtrend. Usually, this technical analysis is employed to take long positions with a stop-loss order placed beneath the pattern’s low to restrict any losses. Besides long positions, this reversal candlestick pattern is useful for traders to discover any potential support levels.
How to trade using a tweezer bottom candlestick pattern?
When a tweezer bottom candlestick pattern surfaces, the following trading strategies can be applied to generate gains.
- As discussed earlier, the emergence of this bullish reversal pattern suggests that the existing downtrend is about to move in an opposite direction. Using this insight, you can exit your current short position or enter a long one.
- The similar lows of the two candles in a tweezer bottom pattern create a support level for the stock. If this support level is breached, it could be a sign that the so-called reversal has failed. In such a scenario, the low of the second candle can be used as a stop-loss while you take a long position.
- To corroborate the reliability of a tweezer bottom candlestick pattern, you can use additional chart patterns and technical indicators. For instance, you can use a volume indicator to prove if the reversal pattern is trade-worthy. This works because an uptick in the volume during the inception of this bullish candlestick confirms that the downtrend has indeed transitioned to an uptrend.
Additional read: What is a morning star candlestick pattern
What are the limitations of using a tweezer bottom candlestick pattern?
While a tweezer bottom candlestick pattern can help enhance your trading strategies, it is crucial to be aware of the following limitations so that you can use it cautiously.
- Partial facts: While tweezer bottom candlestick patterns give out valuable intel, they shouldn’t solely form the basis of your trading decisions. It may be unwise to only depend on these patterns, as they could potentially miss important nuances and details of the trend movements. Integrate this tool in conjunction with different analysis techniques to achieve optimal results.
- Absence of specific protocols: Candlesticks don’t offer exact entry and exit points like chart patterns. So, this ambiguity may cause difficulties while outlining a strategy for your trades.
- False signals: As with any other candlestick pattern, tweezers too are likely to generate false signals. Not all tweezer pattern appearances lead to a significant price reversal trend. So, play it safe by using other tools to verify the data projected by tweezer patterns.
Additional read: Amortisation vs. Depreciation
Closing thoughts
Tweezer bottom candlestick patterns can be a productive tool for designing profitable trades. They can help track the price movements and deduce the market’s moods, enabling you to take swift action to enter opportune positions. However, they might not always interpret the trends correctly, and at times, even prove to be entirely useless when the market is in an indecisive state. So, it would be beneficial for you to use this bullish pattern along with other technical indicators and chart tools for confirmation as well as added insights.
