Trade Mini Course - Yin Yang Candle Patterns
Reversal pattern at the top: flat top.
When you see two candlesticks on the candlestick chart paired together like a pair of pliers, you may need to be careful, as this could be a signal of a trend reversal.
This article will introduce a top reversal candlestick pattern - Tweezer Top.
What is a Tweezer Top?
Tweezer Top is a common double candlestick reversal pattern that usually appears at the top of an uptrend.
This form is composed of two candlesticks with the same highest price. The reason why this form is called a flat head is that the endpoints of these candlesticks are flat like pliers legs.
When a Tweezer Top appears, it may be a signal of short-term price peak.
How is a Tweezer Top formed?
When the price rises to a new high or historic high, investors may begin to take profits, and the selling pressure on the price may be very large. If the price fails to break through for two consecutive times, the bullish power may gradually exhaust, and the bearish may begin to rise, thus forming a stage top. The price may decline in the future.
A standard Tweezer Top pattern generally has the following characteristics.
Located at the top of an uptrend.
Consists of two or more consecutive candlesticks, and the color of the candlestick can be a positive line or a negative line. Although the color of the candlestick is not the most critical, it is believed that the first candlestick of a Tweezer Top needs to be a positive line, and the second candlestick must be a negative line.
These candlesticks have the same or almost the same highest price, and the shape can be a solid body, shadow or cross-star.
How to identify Tweezer Top?
In actual trading, when identifying Tweezer Top as a reversal signal, you can follow these steps:
Identify the uptrend: Find a clear uptrend before the formation appears. If the Tweezer Top appears at the market high, the reversal signal may be more reliable.
Locate the Tweezer Top pattern: Find at least two consecutive candlesticks, and their highest prices are the same. This indicates that the price is under pressure at this position and the trend may reverse. If the first candlestick is a big positive line and the second candlestick is a small negative line, the reversal signal may be more obvious.
Cooperate with other technical indicators: If other bearish patterns such as bearish engulfing or dark cloud cover appear at the same time as the Tweezer Top pattern, the possibility of a decline increases.
Check the third candlestick to confirm the reversal: Generally, investors confirm the reliability of the bearish signal by observing the price trend of the reference third candlestick. If the third candlestick is a down negative line, it may be the beginning of a bearish market.
Case analysis
The following chart shows a Tweezer Top pattern that appeared on the daily chart of Taiwan Semiconductor (TSM) stock price.
On the chart, you can see that before the flat top appeared, the stock price experienced a significant rise, indicating strong bidding sentiment.
At the top of the uptrend, two consecutive candlesticks with the same high price form a flat top. The first one is a bullish candlestick, and the second one is a bearish candlestick, with the second body engulfing the first one's body, while forming a put engulfing pattern. These are signals that the price may be peaking.
To confirm the reliability of this reversal signal, you can refer to the price trend of the third candlestick. As can be seen from the chart, the third candlestick is a bearish candlestick, confirming the put signal.
Afterward, the stock price of Shopify did indeed experience a period of decline.
Summary
A flat top is a bearish pattern composed of two candlesticks, usually appearing at the top of the price.
However, this pattern is not 100% effective, and failures are common.
In actual trading, candlestick patterns should be used in combination with other technical analysis tools to better assist in making trade decisions.
