Forex M And W Patterns

10 min read

Today, I want to share a forex trading strategy with you, called WhaM. This trading strategy is so easy to use, even your parents would be able to trade it. I reckon even your canis familiaris could trade this. Actually, it's super straightforward.

This trading strategy is non created by me. I read about information technology a long time ago from Will at wmd4x.com, who originally came upward with these patterns and institute a way to trade them. This is my interpretation of the system and how I currently trade it.

Information technology's i of the strategies I'yard actively trading and it'due south by far the 1 with the to the lowest degree moving variables. No indicators. No complicated rules. I don't even use candlestick charts for this strategy! And most importantly: it but works incredibly well.

If this sounds like a sales pitch, it's just because I ever get excited telling people near it 🙂 Don't worry, I'm non selling anything. Everything y'all demand to know to adopt this strategy is right here, in this commodity. By sharing this strategy for free, I'm hoping that some people volition benefit from it. I too want to show that trading systems don't accept to be complicated and trading consistently and profitably is absolutely possible, given proper rules.

If, afterward reading, you feel that this article was useful to you, I'd appreciate information technology if y'all share information technology so more people tin can learn about this forex trading strategy:

Permit's go to it, shall we?

The WhaM forex trading strategy

Core concept

The WhaM forex trading strategy is a strategy that uses specific nautical chart patterns every bit the base of operations for low-adventure entries on trades with a high probability of success. Specifically, we will await at double tops and double bottoms that look similar the letter M or W. Once such a pattern is identified, we volition accept an entry at the olfactory organ of the pattern (the middle of the letter). I trade information technology on the 4H chart, but it also works on higher and lower time frames.

Information technology might exist worth noting that I have virtually a 65% win rate on this system, with an average risk to advantage ratio of of 1:1.ii.

Preparation

When trading this organisation, you will want to start out with clean line charts. The reason we employ line charts and not candlestick charts is very simple: it allows u.s.a. to focus on the things that matter. We desire to come across the patterns as clearly equally possible. While candlestick charts provide a lot of useful data, nosotros won't initially demand this level of detail. In fact, the "verboseness" of candlesticks volition dilute our blueprint search procedure, so we will not utilize them, to begin with.

Here's an example of a chart (on TradingView) that is set upwards to trade the WhaM system.

At some bespeak, it is helpful to switch to candlestick charts, since line charts will not always show us how far the wicks of candles reach. In lodge for us to decide whether to enter, the stop loss and the accept profit, it can exist useful to switch to candlestick charts.

No indicators are needed for this trading strategy.

The patterns

So let's get to it! As said, we look for 2 types of chart patterns: double tops and double bottoms. Not merely that, only they need to be shaped similar the letter W or the letter One thousand (see where that catchy WhaM name comes from?). Once we take found such a pattern, we set a pending purchase (for W) or sell (for K) at the nose of the letter (the middle scrap).

The W pattern

There are some more details (which I'll embrace in a moment), simply that's basically it! Let'south await at an example of an EURUSD chart:

Encounter the make clean W shape? That'southward exactly what we're looking for. If you lot check your charts, you'll meet that this pattern happens fairly oft.

If nosotros would have set a pending buy at the nose of the W pattern, what would have happened? Let's encounter how that would have played out (by the way, I'm using ForexTester iii for the screenshots. If you're looking for the best software to do forex dorsum- and forward testing, that'southward the one y'all'll want):

The M pattern

At present, don't go jumping into every W and M design you see on your charts just nevertheless! In that location are a few things that are important when we're looking for the best Westward and M patterns setups and I'll become to that in a minute. For now, permit's have a look at an case of a good M pattern:

As yous tin meet, I accept set a pending order (a sell limit order) at the nose of the M pattern, with a stop loss above the Thousand pattern and a take profit below the M, for a risk to reward ratio of 1:1 (we'll get to stop loss and have profit levels in a minute). Permit's see how it turns out:

And we take a winner! Our awaiting sell lodge got triggered when the price retraced temporarily, only to plummet down and take out our accept profit level.

At this point, I'd like to invite you to switch to line charts and have a await at your own charts. Try to find like W and M patterns and encounter how the price behaves afterwards. Does the price often return to the olfactory organ of the blueprint? Is there ofttimes a reaction once the price reaches this point? Are there also W and M patterns that don't piece of work? What do you think is important when looking for good Westward and M setups?

Why this works

At present, if you're anything similar me, this is the point where you get suspicious 🙂

Why would a simple thing like the shape of some messages actually work as a profitable forex trading strategy? Fair point, that's why I want to get into item on why exactly this works.

1. The double top or double lesser

Regardless of the W or Thousand blueprint, double tops and double bottoms are a powerful existing chart design. Plenty of traders have been very successful in using double tops and double bottoms to trade trend reversals. One of the systems I trade next to this is a reversal organization, and double tops and bottoms are i of my favourite chart patterns (next to head & shoulders and triple tops or bottoms).

Once a double pinnacle or double bottom occurs, information technology is oftentimes followed by a change in price direction. The WhaM trading system only places trades in the direction of that reversal indicated past the double top or double bottom.

Only put:double tops and double bottoms  simply work. That's not me inventing something, they are 1 of the most central nautical chart patterns around.

two. The olfactory organ is a natural support/resistance zone

As the Westward and M patterns are formed, price finds support (for the Thousand blueprint) or resistance (for the Westward pattern) in the nose. There is an often strong reaction around that zone where buyers and sellers will battle for the direction of the price.

When the W and M pattern is completed, however, that level has broken. The support has turned into resistance and the resistance has turned into support. Price will often retest those specific levels, which is why the WhaM trading organisation works.

The retest of such a level is often known equally a "break and retest" since a level that previously held is now broken and retested. Plenty of traders exclusively trade interruption and retest patterns, so even this can be a very skilful and profitable trading system on its own.

Timeframe

I'thousand trading this organisation on the 4H charts. I have experimented with this method on the daily nautical chart, this also works very well. It is, however, a fleck too slow for my liking.

Trading it on lower time frames also works, merely as with nigh strategies, the lower the fourth dimension frame, the lower the win rate. On the other manus, a lower timeframe might give you more than opportunities to enter. This enables yous to play out your edge more oft, which is a benefit.

Entry

One time a W or M pattern has formed, y'all tin put a pending buy or sell at the olfactory organ. Earlier I do then, still, I bank check the following things. While these checks are more often than not optional, I take found that post-obit them will give me a larger win-rate.

i. Size of the pattern

You'll want to look for WhaM patterns whose size are in proportion to the overall marketplace motion. Since that might not be very descriptive, permit me requite you an example. The chart below contains a W (or M, depending on how you wait) pattern, but it is much besides small in the overall context of the price action of the past period.

A good rule of thumb is: if the blueprint looks like the tiny ears of a true cat, skip information technology 😉

On the other manus, the following West-pattern has a skilful size:

2. Cleanliness of the pattern

Every time yous detect a WhaM pattern, think to yourself: Is this really a clean W or M-shaped pattern? It's very piece of cake to kind of run across the messages W or M in daily nautical chart action, merely that doesn't mean it'south a good WhaM design!

The examples at the beginning of this article are clean. Conversely, wait at the following examples:

Of course, you lot tin can recognise a Due west or M in these, just they are really not clean plenty to be traded. Ideally, you desire to see a long first leg in one direction, so the design and and then a long concluding leg in the opposite direction.

3. Sharpness of the olfactory organ

Ok, this might audio weird, simply hear me out. The stronger the initial reaction that forms the nose, the more than likely the setup will work. You will want to see a sharp reaction, with the price just touching a level and bouncing back.

Case of W design without sharp olfactory organ:

What you should avoid are M and W patterns where the price has been lingering at the nose. If the toll seems unsure of the direction and is peradventure ranging a bit around the level, avoid taking the trade. It ways that there is no clear majority of either buyers or sellers and the level at the nose is not very stiff. This, in turn, means that it will be less likely that we see the reaction we want.

4. Infinite before price reaches the nose

In my experience, the patterns work best if it is the commencement time that the price reaches the nose of the WhaM pattern once again. What I mean with "space earlier" is that after the W or M design has formed, I like to see cost move away a scrap at outset before information technology returns to retest the nose and fills our pending order. If just earlier the price reaches the nose it kind of drifts around that area, the design doesn't e'er seem to work every bit well.

Stop loss

The cease loss can usually exist placed a few pips in a higher place the M-blueprint or below the W-design. Even so, this is where it'south sometimes useful to accept a look at the charts using candlesticks since the candlesticks give you lot a amend movie of the extremes of the Westward and M patterns. Consider for example the following chart. On the left side, we use a line nautical chart and on the right side, nosotros're using a candlestick chart:

If we were to just set our stop loss levels using the line chart, we might have risked placing them too close to our entry. Instead, it would be better to place them above the wicks of the candles. If the price returns to that surface area, it's not uncommon to test previous highs or lows. Putting our stop loss a footling scrap beyond that level will requite united states a better chance of non being stopped out, equally we tin can meet here:

I'm not using a trailing stop or early move of the stop loss to interruption fifty-fifty with this arrangement.

Take profit

The take profit should be at least the size of the stop loss, giving y'all a risk to advantage ratio (R:R) of 1:1. Often, if the retest of the olfactory organ triggers a sustained move in the contrary direction, nosotros can see that a R:R of 1:2 would also piece of work quite well. Yous'll reduce the win rate of the system by doing so, but since the payoff is better, it is something y'all can consider.

The take profit level could besides be determined based on the relative forcefulness of the level of the nose. It might very well exist that the level of the nose is exactly at a strong zone of previous back up or resistance. In that example, it would be more acceptable to use a bigger reward-to-risk ratio, every bit we tin conceptualize a potent reaction at that level.

Take a chance Management

As I exercise with all the forex trading strategies I use, I employ a strict 1% of equity rule equally the maximum adventure per merchandise. This means that I beginning will decide where my stop loss should be (based on the pattern).  Then, I volition calculate my position size in a style that I won't risk more than 1% of my account remainder. This ensures that my equity curve increases smoothly and potential drawdowns will never become also large.

Conclusion: the WhaM forex trading strategy

This forex trading strategy is surprisingly simple. Given the rules and considerations I've described above, it is quite like shooting fish in a barrel to understand and implement. If you decide to requite this system a go, I urge yous to non but take the things I said for granted, but instead, do your ain due diligence and examination the system for yourself. You lot'll run into that information technology can give very decent returns.

In summary:

• Look for M and Westward chart patterns on the 4H charts
• Earlier entering, wait at the following:
  • 1. Size of the blueprint
  • two. Cleanliness of the pattern
  • three. Sharpness of the nose
  • 4. Space before price reaches the nose
• Put your stop loss a few pips in a higher place or below the pattern
• Put your have profit at to the lowest degree so that yous have a R:R of 1:1
• Never risk more than 1% of your account balance on any single trade

Source: https://smartforexlearning.com/wham-easiest-forex-trading-strategy-ever/

Posted by: trevinoexpeithe.blogspot.com

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