Tweezer Tops and why they're reversal indicatorsHey there. Highlighting one of my favorite candlestick patters, Tweezers.
Identifying:
Green bar. Red bar. Approximately same size bodies. Wicks are the same height. Ezpz.
The story:
During an uptrend, everyone is confident prices will continue to rise, so they continue paying more. "Bulls are in control" but really, it's just the average sentiment; prices are going up so everyone wants a piece before it stops. At some point, early entrants take their profits, prices stop rising, and drop a little bit. Some people get nervous and overall confidence drops a little. It retests the price level again, but more people sell so it fails again, and this repeat price-level failure lowers confidence even more. If the price falls back to where this whole thing started, "bears are now in control" but really people have just lost their confidence that price will rise; everyone thinks that the double-tested price level is the max, whereas before they though it would go to the moon. Positive momentum has shifted to negative momentum.
Different time frames
The fun thing is that this story is the same as that of a double-top reversal pattern, because that's what tweezers are: zoomed-out double tops.
Depending on the first bar's open and the second bar's close, it could also be an ascending triangle. So, you don't know if it's going up or down, but you know buyers are more nervous than before the pattern started.
If you were to zoom out from the double top, and then zoom out again from the tweezer top, the whole thing would look like a gravestone doji.
It would have the same open and close with a long upper wick (not the best example picture since this also has a long bottom tail, but hopefully you get the idea). But not every gravestone doji is a double tests, so tweezers tell the story of the markets a little bit better. At the end of the day though, they all say that prices ran up hard, got rejected, and fell back down hard. Not enough for a buy or sell signal, but if you identify a tweezer top, you now know important price levels and can make slightly better decisions about what will happen in the future if it rises above or falls under them.
Good luck!
