M and W Formations

Article #18
The “M” Tops and “W” Bottoms Formations…
Two of my favorite patterns are the “M” Top and “W” Bottom formations. These market patterns are somewhat predictable; as an indication of possible tops and bottoms.

Let’s talk about the pattern here for a moment…It has to look like an “M” or a “W”. The more it looks like a recognizable capital letter the more affective it seems to be.

Look at this chart for a minute…it should be obvious; it should stand out without a doubt.



Fast Stochastics



An “M” Top occurs after an extended rally. There are 3 ways to take this breakout pattern and they are very subjective:

1. If you have the muscle (Magic Numbers) be aggressive and get short at your entry point just below the number 3 point. Note: I don’t pay much attention to wicks…see the green breakout point 2. Let it pullback and take it the second time through…this occurs on most breakouts; we call them false breakouts. 3. If we think it’s going to continue down but we don’t have the muscle, but we are below the moving average line we can do a couple of things to make a lower risk trade.

· Put an entry target about a point or a point and a quarter below the breakout point and let the market come to you.

· Use fast stochastics and if it’s going to breakout just below the number 3 point (the green line) your entry target, and the blue line on stochastics is crossing over the red line and both are above the 50% line and pointing straight down, (See the Fast Stochastic above.) should give you good shot at it. You may have to risk 2 points to make this higher risk trade work.

Nuance:
A lower risk version of this “M” pattern is to have the #4 point lower than the number #2 point.

Both the “M” and the “W” consists of 5 points…the “M” pattern is bearish and the “W” is bullish. The trade works the same way on the “W” and your entry target would be just above the number 3 point.

Study this chart.



Look at fast Stochastics on both patterns…and at your entry points. Look for these Patterns they occur often.

Thought for the day…
"It all depends on how we look at things, and not how they are in themselves." -Carl Gustav Jung