Watch our video on how to identify and trade tweezer bottom patterns.
What Is a Tweezer Bottom Pattern & How to Identify These Patterns?
- A tweezer bottom pattern consists of two candlesticks that form two valleys or support levels that are equal bottoms. Typically when the 2nd candle forms, price can't break below the first candle and causes a tweezer breakout.
These patterns are two candlestick patterns found on stock charts. This pattern can be seen as a reversal in a downtrend. Watch our video above to learn more about tweezer bottoms.
You may see the tweezer bottom at a turning point in the market or at a reversal of a stock. This pattern formation can allow for precision trading by trend traders. It's one of my favorite dip buy entries for stocks that have high momentum.
Charts are made up of candlesticks that help you get a pulse on the feelings of other traders. Trading is a tug of war between buyer and sellers.
Moreover candlesticks tell a story whether they are high wave candlesticks, dragonfly doji candlesticks or hammer candlesticks. The importance of knowing candlesticks coupled with other tools gives you more understanding of what stocks will do (bookmark our penny stocks list and stock watch lists pages, which are updated daily).
1. Converging Indicators
Tweezer bottom patterns usually occur while the stock is in a downtrend. When you see a tweezer bottom be on the lookout for a reversal.
Price should move up. Remember to confirm with more indicators. Have an entry, exit and stop loss plan before you make the trade!
The move up in price may not be drastic but a change in trend is indicated. A tweezer bottom pattern occurs when there are two days with equal lows. Now we know it may not be perfect so one of the two lows may be a tad bit different (take our free candlesticks courses and learn how to trade chart patterns with entries and stop levels).
That's OK as long as it isn't too different. They need to be pretty similar. This hammers out a pretty key support level. Especially if you can find a whole dollar or half dollar amount.
Or maybe a daily moving average. Perhaps there is a daily 50 Simple Moving Average that is being tested by intra-day price action.
I like to check TrendSpider for multi-time frame analysis. That way I can see a tweezer bottom, or some other pattern forming near a daily moving average. Algos and traders alike look for setups like this.
Trading tweezer bottoms is a good strategy on daily charts too. If you find a stock that is oversold on a daily chart, hits a historic support level on a weekly chart, and forms a tweezer bottom, that's going to attract some traders eyes.
Some people strictly scan for double bottom patterns, with a tweezer bottom on the daily candlestick time frame. They will then place a limit order to enter off any bounce on the tweezer bottoms high. That's trading smart and managing your risk!
2. The 411 on Tweezer Bottom Patterns
Alright, back to to what Tweezer bottoms are all about.
Tweezer bottoms are made up of 2 candles. The first candle should be a part of the current trend. In a perfect world the first candle would have a long real body. We know that that may not always be the case.
Sometimes patterns are not perfect. If you're looking for perfection...the stock market is not the place! But you can strive for perfect rules to implement your trading!
Don't get too worked up over a pattern that isn't exact. The market is more chaos than order, and thus patterns can be sloppy or clean. Confirm trades with volume and trend lines to increase your odds of success.
The second candle can be any size or shape. The 2 candlesticks are probably going to look different. As long as they have the same lows to form the pattern that's fine.
You may see different types of doji candlesticks forming the second candle. Hence the importance of knowing what they mean. They're clues. Take our candlestick reversal patterns course.
3. Technicals of Tweezer Bottom Patterns
Candlesticks of all kinds group together to form patterns. There are large patterns and smaller patterns inside those large patterns.
The large patterns give you a glimpse of a long term move that could occur. Comparatively, there are smaller patterns within that allow you to trade in the short term.
It's important to remember that patterns break down all the time. That's why you need confirmation or be willing to take a risk. Sometimes the risk works out and sometimes it doesn't.
How to Trade Tweezer Bottom Patterns
- How to trade tweezer bottom patterns:
- Watch for 1st top candlestick to form
- Next, watch for 2nd candlestick for form a co-equal bottom
- Then, watch for 3rd candlestick to rise above 2nd
- Traders take a long once price breaks above the 2nd candlestick
- Place stop at bottom of the 2nd candle
- Some traders take a short position once price breaks below 2nd candle
- Then place stop above the 2nd candle
Tweezer bottom patterns tend to be a sign of a reversal but we know that sometimes that may not be the case. You could find a tweezer bottom but the stock pauses then continues the trend.
Technical indicators can help confirm moves. Tweezer bottoms form pretty key support levels. The stock has made two consecutive lows that the bears weren't able to break.
Take a look at where the candles are compared to the moving average lines. Look to see if RSI is oversold. An oversold stock is going to correct and start having buyers come back in.
The moving average lines form equilibrium for stocks. If a stock moves away from it's equilibrium it's going to come back to it. It may not happen right away but it will happen.
All of these things traders are aware of. They obey support and resistance as well as moving average lines.Looking to learn stock trading? Take our free stock training courses to help you get started.
Tweezer bottom patterns can be one of two things. It can be part of a pullback during the continuation of a trend or it can signal the reversal of a trend.
Confirmation of what a stock will do is always good to practice before placing an order. Sometimes waiting for confirmation can make you feel like you've missed out on a bigger move.
That's a whole lot better than thinking a stock is going to reverse when it ends up continuing in a trend. Traders trade greed and fear.
Don't allow your greed or fear to be someone else's profit. Spotting a Tweezer bottom pattern is one of many patterns that will help you be a more successful trader.
Pairing patterns together with other indicators is the smartest thing you can do. But candlesticks - also known as price action is the fastest line of defense and offense for you to use when you are trading.
Why would you use a lagging indicator like MACD as your main entry, when candlesticks are fighting it out in the trenches and giving you your best entry?
I'm not poo pooing MACD at all. I use it for swing trading. However, it makes sense to have candlesticks and candlestick patterns under your belt. Take our free online trading courses.