Candlesticks convey different messages of supply and demand.
We read those messages and look for high-probability setups using patterns of candlesticks in multiple time frames to trade stocks and options.
M & W Reversal Patterns display a confirmation of support/demand and often set up fantastic trading opportunities – particularly if after taking out prior lows or highs.
They are powerful setups that can be traded on any instrument or time frame.
We will show you how to properly trade a W-Reversal with an intra-day setup on SPY using Master Trader Strategies (MTS).
Below shows three variations of the M- and W-Reversal. All are powerful but we prefer the ones that set up after taking out prior lows or highs since that creates a “shock” by taking out stops (i.e., the ones on the left side with the New Low (NL) Shock).
Candlestick Price Patterns
M- and W-Reversals are created because of the uncertainty when the trend does not decisively make a new high/low in uptrends/downtrends.
They have symmetry in shape and time; not just a retest of support or resistance.
They can happen in any trend, although trading with the trend or sideways trends have the highest odds (e.g., a W-Bottom on the 50-MA in an uptrend and bullish higher time frames).
The quality of Setups varies. Having “something extra” (i.e., an Event) to suggest that the reversal is confirmed (e.g., Shakeout, Gap Reversal, Bullish Wide Range Bar (+WRB) on +Vol.) is preferred.
The Structure of the price pattern will speak to us about the relationship between buyers (demand) and sellers (supply) and the likelihood of reversals and trend continuation.
As with all trade setups, we need a Price Void on the time frame being traded, meaning there is insignificant resistance to the left for longs, allowing the issue to move higher towards its target.
This will typically be the case with this pattern because the prior momentum move is a prerequisite to the setup.
S&P 500 ETF (SPY) 15-Min. Chart of W-Bottom Using Master Trader Strategies (MTS)
On 4/22, the rapid fluid move down created the “price void.” This is step one.
Then it retraced less than one-third of the move down and pivots and resumes its downtrend to retest the prior low. As shown above, the anticipated retest can set up in different forms if it will, in fact, form.
SPY made a higher low into the close. Although it could have continued the downtrend the next day, the fact that the first bullish move was a bullish reversal off of Major Support, and Price Void above, suggested a move up provided the closing pivot was not violated.
The next day it had a bullish gap, deep into resistance, and the first candlestick closed strong, suggesting higher prices.
The entry is that candlestick’s high, with a protective stop under the candle’s low for a day trade.
Master Trader Key Concept – W-Bottoms are potential turning points but price tells us what points are tradable.
The rest of the day SPY showed very bullish price action, allowing for simple trade management using trailing pivots.
To learn how to objectively interpret price patterns and trade anything that moves, regardless of your current level of knowledge, you need Master Trader Strategies (MTS).
To learn more about this very important topic which can make — and save you — a lot of money, watch this mini-lesson, Trading Master Trader W-Reversals on All Time Frames, CLICK HERE
Click Here to Learn The Master Trader Swing Trading Strategies to profits over a few days to weeks.
Master Trader and You Building Your Financial Future Together!
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
