Tweezer bottom patterns are two candlestick patterns near the bottom of downtrends or support levels. It’s important to be able to spot these patterns for downtrend reversals. They have co-equal bottoms and typically show signs of a reversal to the upside. Look for the price to break above the second candle and hold to confirm a bullish breakout and continuation.
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Tweezer Bottom Pattern Meaning
A tweezer bottom pattern consists of two candlesticks forming two valleys or support levels with equal bottoms. Typically, when the second candle forms, the price cannot break below the first candle and causes a tweezer breakout.
This pattern can be seen as a reversal in a downtrend. I may see the tweezer bottom at a turning point in the market or a stock reversal. This pattern formation can allow for precision trading by trend traders and good setups for dip buying.
Tweezer bottom patterns usually occur while the stock is in a downtrend. Once a tweezer bottom is found, look for a reversal.
The price should move up. Remember to confirm with more indicators. Have an entry, exit, and stop-loss plan before making the trade. Having a game plan helps traders stay in a trade, as well as helps with emotions.
Basics
The price increase may not be drastic, but a change in trend is indicated. A tweezer bottom pattern occurs when there are two days with near-equal lows. We know it may not be perfect; one of the two lows may be slightly different.
That is allowed as long as it is not too different; it must be similar. This hammers out a key support level, especially if it aligns with a psychological number, such as a whole dollar or half dollar amount.
Trading tweezer bottoms is a good strategy on daily charts. If a stock that is oversold on a daily chart hits a historical support level on a weekly chart and forms a tweezer bottom, that will attract some attention and draw traders’ eyes.
Some people strictly scan for double bottom patterns, with a tweezer bottom on the daily time frame, then place a limit order to enter off any bounce on the tweezer bottoms high.
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The 411
Tweezer bottoms are made up of two 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; however, this may not always be true.
Do not get too worked up over a pattern that is not exact. The market can create chaos; patterns can be sloppy or clean. Confirm trades with volume and trend lines to increase confidence and possibly even the odds of success.
The second candle can be any size or shape. These two candlesticks are likely going to look different. As long as they have the same lows to form the pattern, that is fine; the second candle may form different types of doji candlesticks.
Tweezer Bottom Patterns Trading Strategy
- Watch for 1st top candlestick to form
- Next, watch for 2nd candlestick to form a co-equal bottom
- Then, watch for 3rd candlestick to rise above 2nd
- Traders take a long once the price breaks above the 2nd candlestick
- Place stop at the bottom of the 2nd candle
- Some traders take a short position once the price breaks below 2nd candle
- Then, place the stop above the 2nd candle
Tweezer bottom patterns tend to be a sign of a reversal, but that may not be the case sometimes. Traders could find a tweezer bottom, but the stock pauses and continues the trend.
Technical analysis can help confirm moves. Tweezer bottoms form key support levels. The stock has made two consecutive lows that the bears could not break.
Tweezer Bottom Pattern Example
This is an example of tweezer bottoms on a daily chart of $GLD. Notice the two small candlesticks that have coequal bottoms. The first candlestick was an inverted hammer. After the reversal took place, a cup and handle pattern formed. There was a short-term breakout but then a rising wedge failure.
It’s ok if the bottoms aren’t always the same. Sometimes, there might be an extra wick or shadow. They don’t have to be perfect. The important thing to be aware of whether this is happening near a key support level and watch for confirmation for the reversal to occur.
The $AMD tweezer bottom setup, at $30.00, is ideal for a scalp trade, allowing traders to enter on confirmation. I got a nice volume injection; Volume helps to confirm the move’s strength. The bigger overall pattern on this chart was a falling wedge. You’ll see the red candle forming near angular resistance. If the price fails that area, you’d watch if it fell to the bottom of the tweezers. This is where traders would place their stop losses.
This picture also shows tweezer bottoms that formed before the five green candlesticks. Price action was trading sideways, and then you had the green and red tweezer formation. The price formed the setup for a nice bull flag breakout. However, the price started to be rejected near the moving average line resistance.
Bottoms and Tops
The picture above is a daily chart of $PYPL. You’ll notice that the highlighted area has two candlesticks with both coequal tops and bottoms. This pattern is a tweezer bottom and a tweezer top. Many times, you’ll see tweezer bottoms at the top of uptrends. Also, many times, both of these patterns will form together.
Typically, tweezer bottoms are strongest as a bullish reversal when found at the bottom of a downtrend and tops at the top of an uptrend. Determining where the tweezer bottoms take place is important to determine its effectiveness. This goes for all chart patterns. It’s important to look at the patterns inside of the overall pattern.
These tweezer patterns ended up forming a large bull flag pattern. They signaled the pullback after a large rising wedge pattern. After the bull flag, another large wedge pattern formed to confirm the upward trend. The volume was a bit light when the tweezer bottoms formed in this picture, which signaled that it might be a pullback rather than a steep decline in price.
Final Thoughts: Tweezer Bottom
Tweezer bottom patterns can be one of two things. They can be part of a pullback during a trend’s continuation or signal the reversal of a trend. The pattern doesn’t have to be perfect-looking. What matters is where this formation is taking place. This is especially true at the top of larger patterns, such as bullish and bearish megaphone patterns. Often, this pattern will take place near angular support and resistance levels, signaling a reversal is about to take place.
Confirmation of what a stock will do is always good to practice before placing an order. Always have a game plan before trading. Plan to fail; never fail to plan!
Frequently Asked Questions
A tweezer bottom indicates a trend reversal. They are found during downtrends and signify that the price is about to reverse and go bullish.
Tweezer candlesticks have a 60% success rate or more, depending on how strong the base is that's being formed. Even though they are a reliable pattern, they can still fail.
Once the price breaks above the second candlestick on a tweezer bottom, this confirms the bullish reversal has taken place.
