What is M and W Pattern Trading?

M and W patterns are chart formations that show possible trend reversal in price movement. Traders study these patterns to understand when a rising trend may slow down or when a falling trend may turn upward. The M pattern in trading looks like a double top and often signals a downward move. The W pattern in trading looks like a double bottom and often signals an upward move. 

These M and W patterns form when the price tests the same level twice but fails to cross it. This repeated reaction reflects a shift in buying and selling pressure. When traders read these shapes correctly, they get clues about market sentiment and possible direction changes. 

How to Identify M Patterns on Charts 

Here is how one can identify the M pattern on charts. 

• First Peak Formation 
  The M pattern begins when the price rises and forms the first high point. 
• Temporary Pullback 
  After the first peak, the price falls to create a short-term support level. 
• Second Peak Near Same Level 
  Price rises again but fails to cross the earlier high. This creates the second top. 
• Neckline Identification 
  The lowest point between the two peaks forms the neckline. This level is watched closely. 
• Break Below Neckline 
  The pattern confirms when the price moves below the neckline with noticeable volume. 
• Volume Behaviour 
  Volume often reduces during the second peak and rises during the breakdown phase. 

How to Identify W Patterns on Charts 

Here is how one can identify the W pattern on charts. 

• First Bottom Formation 
  The W pattern starts when the price falls and forms the first low point. 
• Short-Term Recovery 
  Price rises from the first bottom and creates a resistance level. 
• Second Bottom Near Same Zone 
  Price falls again but holds near the previous low, forming the second bottom. 
• Neckline or Resistance Level 
  The high point between the two bottoms becomes the neckline. 
• Break Above Neckline 
  Confirmation occurs when the price moves above this neckline with steady participation. 
• Volume Confirmation 
  Volume often rises during the breakout, showing buying interest. 

How to Trade Using M and W Patterns? 

Here is how one can trade using the M and W pattern.  

1. Entry Planning 

• M Pattern: Consider entry after price breaks below the neckline level. 
• W Pattern: Consider entry after the price moves above the neckline resistance. 

2. Stop-Loss Placement 

• M Pattern: Place stop-loss slightly above the second peak to manage downside risk. 
• W Pattern: Place stop-loss slightly below the second bottom for protection. 

3. Target Estimation 

• M Pattern: Measure the height from peak to neckline and project downward. 
• W Pattern: Measure the depth from the bottom to the neckline and project upward. 

4. Volume Check 

• M Pattern: Look for rising volume during the breakdown for stronger confirmation. 
• W Pattern: Look for higher volume during the breakout for better validation. 

5. Indicator Support 

• M Pattern: Momentum indicators like RSI may show bearish divergence. 
• W Pattern: RSI often shows bullish divergence near the second bottom. 

Key Differences Between M and W Patterns 

The following table highlights the key difference between M and W patterns. 

Conclusion 

The W and M pattern in trading gives visual clues about possible trend reversals in price charts. The M shape points to selling pressure after a rise, while the W pattern in trading reflects buying interest after a decline. Careful confirmation through volume and indicators supports better interpretation. Traders who study these formations often track them using a share trading app for regular chart review.