How to Trade the Tweezer Top - Investing Shortcuts

How to Trade the Tweezer Top

By October 24, 2016Trading
How to Trade the Tweezer Top

Traders, enjoy this 7-minute video, describing in detail one of the most powerful reversal candlestick patterns which can help save you (or maybe make you) bounties of cash.

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Investing Shortcuts – How to Trade the Tweezer Top from Investing Shortcuts on Vimeo.

Check Out the Transcript Below…

Hey traders, friends and investing enthusiasts from around the world.

Welcome to Investing Shortcuts, my name is Jerremy Alexander Newsome. And I’m here to present you a really quick video on a fun candlestick pattern called the tweezer top.

And a tweezer top is a great indication of a market turn, market rollover, market pause, market retracement, AKA a potential bearish move coming.

And the good news is, the reason this video is gonna be so quick is because this is a very, very easy pattern to find and/or scan for, depending on what program you’re using.

So, bottom line is, a textbook tweezer top candlestick pattern is a bullish candle, followed by a bearish candle, okay? That’s the first step, it’s vitally important, so it has to be a bullish candle regardless of the color – it can be green and red or as you see on my screen could be white and black.

Whatever the bullish candle color of your preference is, it needs to be a bullish candle followed by a bearish candle and those candles have to have the exact same price, that is the high price.

So they have the exact same high price, now I do mean to the penny. If it’s gonna be an exact, AKA perfect, AKA textbook tweezer top pattern. So these have the exact same high.

So for example, the high could be a wick, could be a body, whatever the price, the high price is if those two prices are identical, that is, in fact, a perfect tweezer top. And most traders will mention that this pattern exists and it’s very strong but very few show you how to trade it.

That will become my objective today and on this particular stock I’m looking at Nike.

I’m just gonna try to see if I can find one really quick, but again for a perfect textbook tweezer top, the prices are the exact same high.

And the symptom behind that is obviously quite apparent, that the stock came up to a level, tried to break through that level and couldn’t.

I mean, it got to the penny and then reversed and the very, very next day stock kept buying, buying, buying, boom hit that exact same price to the penny. Couldn’t budge it by one, red, American cent and then rolled over again.

So here’s one example on Nike that I can see – here’s what I was looking at – but that’s not a tweezer top. It’s actually a one black crow candlestick pattern, if you’ll notice, the highs of those two candles are not the same.

This pattern right here, not a tweezer top, number one, because the highs are not the same, and number two, because the second candle is not bearish.

Same thing with this: this is a reversal candlestick pattern known as a bearish engulfing, but the highs are not the same.

So now we have this one right here on Nike and these highs are actually three cents from being the exact same. So the high of this candle is $63.47, the high of this candle is $63.50.

So Jerremy, is this a tweezer top? Yeah, it’s a pseudo tweezer top.

It means that these candles have almost identical highs, three cent difference. So, therefore, it’s not an exact tweezer top, but it could be played very, very similar. If it was an exact tweezer top, I’d be a little bit more aggressive on this trade, something like an entry below the bearish candle with a stop right above it.

But in this scenario, since the highs are not the exact same and the second candle is actually smaller than the first. My entry would have been below the low of the bullish candle with a stop above the high.

That will be my entry and you would have seen we would’ve gotten triggered on the third day and yes, the trade would have ended up working. That’s just kind of the way that this little setup plays out.

So this pattern right here, we can see is not a tweezer top. It’s got a white candle followed by a black candle with highs that are most certainly different – actually ends up forming what I refer to as a flag pattern.

Now, let’s go find a few more on Nike, right here not a tweezer top, actually more of an evening star reversal. So again, they don’t have the exact same highs. This one right here – very close, but again the highs are not the same and really not even close to the same, you got pretty much like 40, 50 cents there.

So really, if I’m dealing with a tweezer top, again I like them to be the exact same to the penny, maybe one to four cents of variance. Once you get more than five, six cents it’s not really a tweezer top and it’s something I don’t even really call a tweezer top at all, generally.

Let’s see, here’s one that’s very close but again, not quite a tweezer top. Here’s another evening star reversal, so you’ve got a lot of other reversals, but the tweezer top is a very, very strong reversal. And as you can see, is a little bit more rare.

Here are candles with all very similar highs, all throughout here, so you got a candle here, here, here, here. The highs are within three, four cents of each other and had it broken out above that, that would’ve been a bullish signal, but it did roll over. No perfect tweezer tops in there, but still a strong pattern nonetheless.

Let’s see if this one is the exact same. So this one right here is one penny difference. This pattern and this pattern did occur at a resistance, so you’ll notice, here’s the resistance level right here and these two have the exact same high. White candle followed by black candle, so the bearish entry would have been here, stop initially would have been right there.

And if you were an active trader, notice that earnings would be coming up, and you would’ve gotten out likely for a small gain or for break even. Or for a small loss, depending on your time frame on that particular trade.

But tweezer tops are really, really fun reversal patterns to be keeping an eye out for. They happen on all stocks and ETFs, again they’re pretty rare, they can be scanned for and built into a really good program.

But overall they are one of the strongest reversal patterns out there that exist, and if you can find them, you can almost guarantee a direction and a move in the direction that you’re looking for, on a particular time frame.

Almost without fail if it breaks the low of the first bullish candle, the second or third day, it will move in your favor at least a little bit. So same thing with over here, right? You were profitable for about a day or two, maybe three or four, depending on where you got out, right? It did break the low and it did trade down just a smidge, now it wouldn’t have been a huge home run trade like this one.

So this one is actually two pennies away from the exact same high so since the first candle is smaller than the second candle, entry would have been here. Stop would have been there, and again a nice little bearish move right there on the downside.

So this is a strong pattern, especially depends on where it occurs and the size of the candles.

If you want to learn more about candles, you can always hop over to a website that I’m pretty fond of and come over here to EDUCATION. And click on Candlesticks under EBOOKS. This is entirely for free. Really good ebook and goes through a lot on candlesticks.

Otherwise, traders, hope you enjoyed this Investing Shortcut. If you have any additional questions, feel free to leave a comment in the comment section below. I would love to know what other trades or stocks you’re looking at or what questions you might have.

Thanks for watching, you guys rock, and until next time, love life, live life and trade it.

Jerremy Newsome

Author Jerremy Newsome

Jerremy Alexander Newsome is a full-time trader and the CEO and co-founder of Real Life Trading - a community of innovative, inspiring, and driven people from all around the world. Jerremy and company share their Real Life perspective on everything day trading, retirement planning, investing, budgeting and more... His passion is in trading the market and helping others achieve success with their own trading through enthusiasm and humor. He specializes in candlesticks, gaps, credit spreads, day trading, and swing trading. You can count on his eccentric approach to both trading and teaching to set him apart from your standard educators. We are sure that his quirks and quotes will delight you and of course, help you trade faster, better, and more profitably.

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