How to trade the Tweezer Top Candlestick Pattern
Unlike the bullish tweezer, the tweezer top candlestick formation occurs at the top of an uptrend, therefore it is a bearish pattern. In the example below, we again have a EUR/USD daily chart, but this time the initial trend is bullish.
As you can see, it is an extremely powerful bullish trend of around 800 pips in range. At the top, the price action gaps higher and continues in the same direction. Albeit the strong powerful trend, the next candle is extremely bearish as its body is almost double the body of the prior candle.
Hence, not only were the prior candle’s gains erased, but the gap was filled in as well. Similar to the first example, this type of a bearish tweezer is extremely strong due to the shape of the second candle, and the chances of a reversal are very high.
Our entry is where the second candle closed the day. The problem here could be the size of the second candle, given that it is 200 pips away from the top and our stop-loss. For us to be profitable, profit-taking levels should be nearly double.
Thus, we use different types of analysis to see where the reversal may end. Given the strength of the bull run, it is likely that the reversal will be powerful as well. Finally, we take the start of the bull trend as a reference for take profit. In the end, the bears are successful in erasing all prior bulls’ gains and even breaching the support.
This is a more long-term trade as the ranges are big. We risked around 200 pips but have managed to gain around 500 pips, which is a 2.5:1 reward to risk ratio.
Before you start trading live markets, we strongly advise that you first trade virtual funds until you master trading volatile markets. This way, you will prepare yourself better, and protect your capital before you feel that you are ready to trade live.