The simple W pattern starts off with the price of any market, making a big rounding bottom.
It then reaches the first high.
Next, the price fails to reach above it and instead it turns back down forming another rounding bottom.
The second rounding bottom pretty much makes the same level low as the first rounding bottom.
Once the price has reached this low, it turns back up and touches the high again…
This high is known as the resistance or a neckline.
This is the level where we’ll then wait for the price to break up and out of the formation.
That’s when we go long and hold until the price reaches the size of the entire Simple W Patterns.
The formula I use to determine the target is the follow:
Price target =
[(Neckline – Low of first rounding bottom) X 2] + Neckline.
When you see this formation there is a GOOD chance the price will break up and out and head to the take profit. I say around a 65% to 70% chance…
Second W Pattern is…
Type #2: Extended W Pattern
The main difference between the Simple W and the Extended W is where the low is for the second rounding bottom.
This is where the price low drops even FURTHER than the previous low.
We say that there was strong selling (supply) power, and the buyers were not strong enough to hold the previous support.
But then, the price turns around and goes to the high of the W Pattern. Once the price breaks up and out of the extended pattern there is a good chance the price will continue up until it hits the price target (as calculated in Type 1).
In my experience, this pattern works out around 50 – 60%. We call it a medium probability trade. And so instead of risking 2% per trade, I like to risk only 1.5%.
Not the best W pattern but it’s still a good setup to take a trade.
Moving on.
Type #3: Short Formed W Pattern
