Tweezers – price action pattern
We study the features of the formation and use of the model
While most novice traders puzzle over the question of how to find the points (areas) where support and resistance are located, experienced players just watch the chart. The inability of “bulls” (“bears”) to overcome a certain level is a signal of the presence of sellers (buyers) in its immediate vicinity. This is often expressed in the formation of two or more bars with the same extremes. They help to identify support (resistance) both in real-time and a little later because the market has a memory: once faced with a barrier, it remembers the place of its position.
In technical analysis, two or more bars with the same extremes are called tweezers. It refers to price action patterns and can occur both in an uptrend (“bearish” or Tweezers – peak), and in case of a downward trend (“bullish” or Tweezers – base).
Judging by the name, the pattern refers to a reversal pattern, but in fact, it can also be formed by the depletion of the corrective movement. In my opinion, P and ncet at the pullback is a very effective model for continuing the trend, which is proved by the GBP / USD example.
Tweezers on GBP / USD chart
Starting in May, the British pound was actively sold against the US dollar, but in June, a correction began. Buyers tried to break above 1.276, however, at this level a combination of bars with the same highs at points 1 and 2 was formed. Resistance could not be overcome, after which the bears tried to restore the downtrend. It is difficult to call the first attempt successful because the GBP / USD quotes again returned to 1.276. Here was formed another extreme. The unsuccessful assault on resistance allowed sellers to finally take the initiative into their own hands.
Strategies for working with the “Tweezers” pattern involve opening a position at the next to the last bar of the price cluster. Below its minimum, if it is a bearish model, or above its maximum if it is a bullish one.
Strategy for the Tweezers pattern
On the daily GBP / USD chart after the formation of the Tweezers, the entry point is determined at the minimum level of the last bar of the price cluster. A protective stop order is placed just above the previously formed maximum. Potential profits can be calculated taking into account the targets for harmonious trading patterns. In the case of sterling, we were talking about the AB = CD model and its target of 261.8%. The strategy has earned more than 600 points of profit. The profit factor was 6 to 1.
For more confidence in the need to open a position, it makes sense to combine the Tweezers pattern with other technical analysis tools that allow you to identify support and resistance. For example, with previously studied Pivot or Fibonacci levels. In particular, on the daily GBP / USD chart, the maximums of the June cluster coincided with the level of 38.2% of the AB wave of the AB = CD pattern. Curiously, the entry points to short positions were located near 23.6% Fibonacci.
The combination of the “Tweezers” pattern and Fibonacci levels
Thus, careful monitoring of the chart often turns out to be a much more effective action than blindly following the techniques described in technical analysis textbooks for identifying important support-resistance levels. The “Tweezers” pattern allows you to identify signs of weakness of the “bulls” (“bears”), which is subsequently used to open a position. In subsequent articles, we will talk about variations of this price action model.