A tweezer top is a bearish pattern that often appears at the end of a rally, signifying a dip or reversal. It is easy to spot because it looks like a pair of tweezers –– two candles with small bodies and long shadows above them. Notice that none or several candles can occur between the two candles with the long “tweezer” shadows. The rules are the same for trading the inverted morning star pattern, or evening star:
1. Go short on the close of the pattern.
2. Place a protective stop-loss order 15 pips above the pattern’s high.
3. Identify the three most recent past lows that are preceded and succeeded by two higher lows and place a limit order 10 pips above the low that offers a minimum return of 1.5 times the trade’s risk (i.e., the entry price minus the stop-loss price). Tweezer bottoms are the opposite of tweezer tops. Invert the rules for tweezer tops to trade these bullish patterns.
It shows a tweezer top in the U.S. dollar/Japanese yen rate. In this case, the pattern consisted of just two bars, and the downside follow through was immediate.
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