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TradingCurrencyOnline.com Presents...
The Tweezer Forex Signal: How To
Trade It - by Michael A. Jones
Certain
formations on Japanese candlestick charts can
provide a reliable Forex signal if you interpret
them right and realize the limitations of
candlesticks in the foreign exchange market.
Candlestick
formations work particularly well in some markets
where there are clearly defined opening and closing
periods such as the futures and equity markets. The
Forex on the other hand is a 24 hour market place
that runs for nearly six days a week and therefore
it doesn't have the distinct open and close timings
that make Japanese candlestick formations such
significant indicators.
However,
there is a significant candlestick formation that
can be used as a Forex signal taking into account
the open closing times of various markets (New York,
European, Asian sessions) and the overlapping times
when market reaction is more pronounced.
This Forex
signal is commonly called the Tweezer shape. It
consists of two candles side by side with short
bodies at the base and long wicks that extend
upward. The two candles can be either identical in
shape or they may simply have approximately the same
size body and wick. Conversely they can be the other
way, a short body at the top with long wicks
extending downward.
WHY can the
tweezer candle formation be a significant Forex
signal?
It helps to
understand what is represented by a candlestick.
There is a need to go behind the scenes and perceive
what is actually going on in the market.
Every candle
represents a battle between the bears and the bulls,
struggling to gain dominance. In the case of a
tweezer candle formation at the top of a price move,
the bulls took price up to a certain level but were
unable to hold it and price came back.
In the
second candle period, the bulls again tried to take
price up but only succeeded in reaching the high of
the previous candle and again their efforts failed
with price coming back. A new high was reached, then
an attempt made to pass it which failed, the bears
wresting control from the bulls.
If a tweezer
formation is seen at the end of a large downward
move in price, then the opposite is true. The bears
have not been able to maintain new lows and the
bulls have wrested control.
The tweezer
candlestick formation as a reliable Forex signal is
conditional however on other factors.
 WHEN can the
tweezer candle formation be a significant Forex
signal?
It is
probably unwise to just take a tweezer formation as
an instant Forex signal to go long if the tweezers
form at the top of a run up in price or short in a
drop in price. A reliable Forex signal involves many
factors not just one.
Here are
some key points to keep in mind:
*
Tweezer formations on higher time frames (1 hour, 4
hour) are more significant. At times a tweezer on a
15 minute chart can provide a good Forex signal if
it coincides with other factors mentioned below.
*
Tweezer formations can be significant when they come
at a key level of resistance or support, or if they
are on a pivot line, or a Fibonacci retracement or
extension level.
*
Tweezer formations are not such a reliable Forex
signal if they come in a consolidation pattern when
price is caught in a channel.
*
Tweezer formations can be significant if they come
at the end of a major run in price that is equal to
or exceeds the average daily range. If you pull up
your Average True Range indicator and see what the
average price movement has been for that currency
pair for the last five days and compare it with the
current price movement, if price has already moved
by the average number of pips and you now see a
tweezer formation, there is a higher probability you
can safely enter a trade in the opposite direction.
*
Tweezer formations can also be a reliable Forex
signal if you take into account the average daily
range and the time of day when the tweezer formation
appears. If it appears at the close of the London
session for example, or the end of the New York
session, it is unlikely price is going to go much
farther for the remainder of that day. The
likelihood is price will retrace and that is where
you can catch some good pips.
Trying to
find the perfect Forex signal is a futile exercise
as no such signal exists. However, there are certain
indicators that when put together can constitute a
reliable Forex signal that works more times than it
fails.
Learn to
recognize the tweezer candlestick formation. Take
note of where it appears in relation to price
action, check the time of day, look at your other
favorite indicators, and if they all line up, pull
the trigger!
About the
Author
For a free
candle & chart pattern recognition reference tool
click here:
http://www.vitalstop.com/Forex/Candle-Chart-Patterns
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