Posted by forex at 3:55 AM
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1. Identify a forex tweezer top or bottom. This pattern can be identified by two candles with wicks of similar lengths. They appear at the tops and bottoms of trends. A tweezer top has the wicks at the top of the candles and indicates that a high probability reversal may take place to the downside. A tweezer bottom has the wicks at the bottom of the candles and indicates that the trend may reverse to the upside.
2. Use trend lines. Draw a trend line across the lowest lows in an uptrend and when you see the appearance of a tweezer top, wait for the price of the market that you are trading to cross beneath the trend line before short-selling the market. For a downtrend, draw a line across the tops of the highest highs and when you see the appearance of a tweezer bottom, wait for the price to cross above the trend line before going long.
3. Use an overbought or oversold indicator like the Williams R% or Stochastics. Both of these give reversal signals when they are over 80 and oversold signals when below 20. You should only enter the trade to go long when the market is oversold. Only enter trades to go short when the market is overbought.
4. Enter the trade. Place an order entry for the trade on the first candle that opens above the tweezer bottom, or short sell the first candle that opens below the trend line for a tweezer top.
5. Use a stop loss. Place the stop a few ticks below the tweezer-bottom candles or above the tweezer-top candles.