Let’s break this down simply and clearly.
Lets break down simply and clearly M Tops (double top) and W Bottoms (double bottom) which are reversal chart patterns used in day trading to signal potential changes in price direction.
M Tops (Double Top Pattern)
Think of the letter M: price rises, pulls back, rises again (fails to break higher), then reverses downward.
Components & Rules
- First Peak
- Price rallies to a resistance area and forms a peak.
- Often accompanied by high volume on the first push.
- Pullback
- Price retraces from the first peak, creating a swing low (the “middle” of the M).
- Second Peak
- Price rallies again toward the same resistance zone but fails to break significantly higher.
- Volume is usually weaker on the second peak, showing fading buying pressure.
- Neckline / Confirmation Level
- The swing low between the two peaks forms the neckline (support).
- The pattern is confirmed only when price breaks below this neckline with strong volume.
- Entry & Targets
- Entry: After neckline breakdown.
- Stop-loss: Just above the second peak.
- Profit target: Measure the height from the peaks to neckline and project downward.
W Bottoms (Double Bottom Pattern)
Think of the letter W: price falls, bounces, falls again (fails to break lower), then reverses upward.
Components & Rules
- First Trough
- Price drops into a support zone and forms a swing low.
- Often has high volume selling.
- Bounce / Rally
- Price rallies up, creating the “middle” of the W.
- Second Trough
- Price declines again but fails to break significantly below the first trough (bearish weakness).
- Volume is typically lighter on this second low.
- Neckline / Confirmation Level
- The high point between the two troughs creates the neckline (resistance).
- The pattern is confirmed when price breaks above the neckline on strong volume.
- Entry & Targets
- Entry: After neckline breakout.
- Stop-loss: Just below the second trough.
- Profit target: Measure the depth from neckline to trough and project upward.
Extra Rules for Day Traders
- Always wait for confirmation (neckline break with volume). Jumping in too early = fakeouts.
- Look for divergence with RSI or MACD → strengthens the pattern reliability.
- The timeframe matters: Patterns on higher timeframes (15m, 1h, daily) tend to be more reliable than 1-minute charts.
- Combine with market context (trend, support/resistance zones, news, etc.).
⚡ In short:
- M Tops = bearish reversal after a failed second breakout.
- W Bottoms = bullish reversal after a failed second breakdown.