Bulkowski’s Tweezers Top

Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.

In my book, Encyclopedia of Candlestick Charts, pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

Tweezers top candlesticks are simple to find in a historical price series. Just look for two adjacent candles with the same high price in an uptrend. Candle theory says that the pair is suppose to be a bearish reversal because it illustrates overhead resistance, but my tests show that tweezers tops actually act as bullish continuations 56% of the time. That performance is, of course, near random. Thus, expect the breakout to be in any direction. With an overall performance ranking of 81 (where 1 is best), that suggests the price trend after the breakout is weak.

Important Results

Theoretical performance: Bearish reversal Tested performance: Bullish continuation 56% of the time Frequency rank: 35 Overall performance rank: 81 Best percentage meeting price target: 65% (bull market, up breakout) Best average move in 10 days: -3.21% (bear market, down breakout) Best 10-day performance rank: 42 (bull market, down breakout) All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

Tweezers Top

Discussion

Any pair of candlesticks qualify as tweezers tops providing they have the same high price and appear in an upward price trend. The belief behind the candle pattern is that the twin high price marks overhead resistance. But the resistance is weak and price closes above the pattern 56% of the time, based on the 20,000 tweezers top patterns that I studied.

Only 65% of the candles meet their price targets in a bull market after an upward breakout (and that is the best showing among the four combinations of bull/bear market and up/down breakouts). The target is the candle’s height projected upward from the top of the candle. That comparatively poor performance (best would be a hit rate of over 90%) suggests that the price trend after the breakout is weak. In fact, the best average move over a 10 day spread is a drop of 3.21%, and that happens after a downward breakout in a bear market.

Identification Guidelines

Three Trading Tidbits

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

1. Tweezers top candles that appear within a third of the yearly low perform best -- page 840.
2. Tweezers top candles with tall upper and lower shadows tend to do well -- page 841.
3. For best performance, trade in the direction of the prevailing price trend -- page 842.

Example

If you believe candle theory, a tweezers top candlestick highlights overhead resistance. Pictured in the chart is an example of a tweezers top (circled in red) in which price continues moving higher. In fact, an upward breakout (which occurs when price closes above the top of the candle pair) happens 56% of the time. That means the candle acts as a reversal 44% of the time. Both values I consider near random, so you will likely not be able to accurately guess the breakout direction with any certainty.

In this example, the first day is a tall white candlestick followed by a short black one. Both appear in an upward price trend and both have the same high price. The next day price closes higher, above the tweezers top, staging an upward breakout. Price continues rising. Notice how the tweezers top appears almost midway into the up trend. With chart patterns such as flags and pennants, they often mark the middle of an upward trend so you can better guess when the trend will pause or even reverse.

-- Thomas Bulkowski