Binary Options Systems Using the Tweezer Pattern
by Girvan Lambert
The binary options strategies I’m about to discuss below are obviously built on a candlestick pattern known as the “Tweezer”. They are variations of the Put/Call and Touch/No Touch trades, the applications of which become quite self-explanatory once you understand the reasoning behind the system and the market conditions the above said Tweezer pattern usually heralds.
The first step is to define the Tweezer pattern and to explain what its presence means for the asset price. The Tweezer is a pattern made up of two candlesticks, a Day 1 candlestick, and a Day 2 one. Tweezer formations can be Tweezer tops or Tweezer bottoms, depending on where on the asset-price graph they occur, and what sort of a trend-reversal they point to. For the sake of this example, we’ll consider a Tweezer top, the Day 1 candlestick of which is a bullish one, while the day 2 candlestick is bearish. How does one recognize a Tweezer top? The pattern is quite peculiar indeed, with the day one candlestick showing a long body with a short shadow (wick) at the bottom. The Day 2 candlestick opens exactly where the day 1 stick closes, and it closes below the opening price of the day 1 stick.
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With that in mind, it’s clear to see what a Tweezer-top pattern points to: a bearish reversal of a bullish trend. Whenever such a tweezer appears at the top of an uptrend, a bearish reversal is definitely in the books, and here’s why: the Day 1 candlestick represents the continuation of the previous trend (a bullish one in this case). As soon as the candlestick closes though, sellers hit the market and the asset-price takes a downward turn, so much so that it erases all the gains of the Day 1 candlestick and it goes down way below it. What this means is that the general market-sentiment has gone through a reversal, and therefore the ensuing bearish trend is likely to prevail for a while.
The Tweezer Bottom pattern works in a similar fashion, with the obvious difference that it shows up at the end of a bearish trend, signaling a bullish reversal. In this case, the Day 1 candle is obviously a bearish one, while the Day 2 one is a bullish candle, closing above the opening price of the Day 1 candle.
Let’s return to the tweezer top pattern though and take a look at how we can actually put it to use in a trading scenario.
The peculiar thing about the tweezer top is that it’s only suitable for the trading of the PUT option. The CALL trades can be made with the tweezer bottom pattern though. The Touch/No Touch contract can be traded with both candlestick patterns.
In the case of the tweezer top pattern, the PUT trade should be placed as soon as the pattern is observed. The expiry on the trade should be generous, in order to give the price enough time to move into position for profit.
The No Touch zone begins some 30 pips above the high of the tweezer top, while the Touch option should be purchased about 40 pips below the tweezer pattern.
The trading works in a symmetrically similar fashion with the tweezer bottom pattern. Obviously, the critical point in this strategy is the spotting and the correct identification of the tweezer patterns. Support and resistance levels should be used in the confirmation of the patterns, and the stochastic oscillator is also an option in this respect.