Wednesday, January 16, 2008

What are tweezers candles?

Candlestick theory recognizes both a tweezers top and a tweezers bottom. The tweezers formation always involves two candles. At a tweezers top, the high price of two nearby sessions is identical. Meanwhile, at a tweezers bottom the low price of two sessions that come in close succession is the same.

For simplicity, let's talk just about the tweezers bottom. In some instances, the tweezers bottom is formed by two real candlestick bodies that make an identical low. In other instances, the lower shadows of two nearby candles touch the same price level and the stock then bounces higher. Meanwhile, a third possibility is that the lower shadow of one day and the real body of a nearby session hit the same bottom level.

Tweezers sometimes occur on two consecutive trading sessions. In these cases they are relatively easy to spot. However, they can also occur several sessions apart -- say six or eight. (If they are spread further apart than that, then the formation is beginning to approach the double bottom or top described above.) When the tweezers occur consecutively their forecasting value generally increases. Why? Well, in these cases a bullish or bearish move has been absolutely stopped in its tracks and is more likely to reverse.