It’s greater to receive in found on the begin of the trend, instead of to be at the finish of it. That’s why traders are usually seeking to receive in the door once the marketplace data a possible turn. And some even desire a greater edge, possibly seeking to receive in before a trend reversal begins.
For those of us who can’t predict the future, there are certain technical formations that may enable help our inclinations that the herd will be changing directions. One such pattern is the twee er. Although comparatively unknown to the broader marketplace, the twee er might be among the right indications a short- (or long-) expression trend might be nearing its end. Drawing similarities with all the more prevalent double top/bottom, the twee er could make excellent probability setups in the foreign exchange marketplace.
SEE: Analy ing Chart Patterns
Double Tops/Bottoms: a Classic
Some of the initially technical formations that certain pupils of technical analysis are taught, is the double top or bottom. The longer-term research is right up there with help and resistance, flags and pennants, and the doji. And it remains common even now.
Just, the double top (or bottom) reversal is a pattern that seems to shape after a long extension upward (or downward). It means that the energetic momentum within the past uptrend has stalled, exiting the door available to possible weakness through substantial marketing stress. The following battle between customers and sellers lasts temporarily and ends with a final drive up before we see the cost action decline. This final drive creates a 2nd peak in an otherwise stable channel pattern, forming a double top.
SEE: Technical Analysis Tutorial
A textbook illustration of the double top appears in the EUR/USD currency pair shown in Figure 1. Here, the euro makes a excellent from the U.S. dollar simply shy of the $1.6050 figure in April 2008. After 2 along with a half months of stable, range-bound trading, customers create a final drive high in July before surrendering to sellers. The outcome is a violent drop until final help is reached at only above the $1.2250 figure.
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Figure 1 |
Source: FX Intellicharts |
Twee ers: the New
Similar to the bearish diamond formation in popularity, twee ers (or kenuki) are relatively unknown, partly because they are strikingly similar to double tops/bottoms. The key difference is in the timing of these two formations. Relatively reserved for the short term, twee ers are composed of two or more consecutive candle sessions. Any more than approximately eight to 10 candle sessions and we may well be looking at a double top or bottom percolating. However, given the short time frame, complete twee er formations tend to happen quickly. Price is another important factor with the twee er. In a top or bottom formation, the prongs have exactly the same high prices (in a twee er top) or low prices (in a twee er bottom). This idea is key, as it establishes the fact that the price level itself was not broken.
SEE: Introducing The Bearish Diamond Formation and The Art Of Candlestick Charting – Part 1
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Figure 2 |
Source: FX Intellicharts |
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- In Figure 2, we have a typical twee er top in the EUR/USD five-minute chart. After an advance high from past help of $1.3210, customers appear to be losing steam. As a outcome, the initial significant (point A) is set at $1.3284. After a brief, four-session downturn, customers create a final drive high, marking the 2nd excellent (point B) at the same cost of $1.3284. This falls within our description of the top. The strength of the resistance, and the truth that the cost was tested again and failed, assists underlying marketing stress spark the short-term cost decline.
Keep in Mind
The same significant or low has to be tested (this really is especially important).
The formation follows an extended advance or decline.
Twee er tops and bottoms tend to shape with 2 or even more candles.
Additional formations are better. Dojis or hammers that create the 2nd peak can add to the signal as it confirms a shift in sentiment.
Trading the Formation
Then let’s take a consider applying this setup in the marketplace. Taking the GBP/USD currency pair, we see a best illustration in the short-term, five-minute charts (Figure 3). Here, the twee er happens with merely 2 candle sessions following an extension lower from $1.4360 resistance.
The initial low (point A) is established as the last candle in the downtrend closes at $1.4279 in the GBP/USD.
The 2nd low (point B) is established as the following candle session opens at the $1.4279 low and refuses to proceed to break it. As a outcome, we have prepared the low cost twice without violating $1.4279.
After the 2nd candle session has closed, we put an entry 2 pips above the close cost. A corresponding stop purchase is placed really five pips below the $1.4279.
As a outcome, keeping with a 2-to-1 risk/reward profile, the take-profit point is at $1.4319 (point C), 30 pips high.
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Figure 3 |
Source: FX Intellicharts |
For a slightly longer-term trade, an oscillator is an especially good confirmation tool. In Figure 4, we simply add a MACD to confirm our USD/CAD short-term trade opportunity.
SEE: A Primer On The MACD
- The first low is set at $1.2201 (point A).
- The second low is set at $1.2201 (point B) three candle sessions apart. Confirmation of this trade opportunity surfaces as it appears a MACD bullish convergence has emerged (point X), lending an upside bias.
- After the close of the second candle, we place an entry order two pips above the close price of $1.2207, or $1.2209.
- At the same time, a stop order is placed five pips below the low at $1.2196.
- The take-profit or limit order is placed 22 pips above, corresponding to a 2-to-1 risk/reward ratio at $1.2231 (point C).
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Figure 4 |
Source: FX Intellicharts |
The Bottom Line
Precise and brief, the twee er setup is a excellent formation that is selected by the currency trader or trader as FX cost action seems to follow technical patterns over any additional marketplace. This leaves help and resistance to be tested and retested, offering the chance for these formations to surface. Adding strict discipline and rigid risk administration rules may aid these setups increase a trader’s arsenal.
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