The W-M Pattern Trading Strategy

Presenting the W-M Price Pattern in TradingView

Pattern recognition is a key concept in trading. This article discusses the W-M price pattern, a configuration detected on a normalized index with the aim of predicting short-term reversals.

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The W-M Pattern

The W-M pattern is a price configuration seen on the normalized index which takes the close price as an input.

The normalized index takes the recent n close prices and traps them between 0 and 1 with 0 representing the lowest close price in the lookback period and 1 representing the highest close price in the lookback period. The trading conditions of the W-M pattern are as follows:

• A long signal is generated whenever a successive W shape is formed on the normalized index. Similarly, the close price of the last leg of the W must not be above the previous high and the normalized index must not surpass 0.50.

• A short signal is generated whenever a successive M shape is formed on the normalized index. Similarly, the close price of the last leg of the M must not be below the previous low and the normalized index must not break 0.50.

The W and M patterns should look like this:

A W pattern followed by an M pattern

A solid condition to the pattern is that the normalized index must not surpass 0.50 in the last step (the last leg of either W or M).

Example of an invalid signal as the normalized index has surpassed 0.50

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Coding the W-M Pattern

The W-M is easily coded in Trading View’s coding language, Pine Script. As it relies on simplified conditions, it becomes simple to code a recursive algorithm to scan for the signals:

Signal chart

You can code it yourself using Pine Script:

// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © Sofien-Kaabar

//@version=5
indicator("Simplified W's and M's", overlay = true)

lookback = input(defval = 14, title = 'Lookback')

normalized_price = (close - ta.lowest(close, lookback)) / (ta.highest(close, lookback) - ta.lowest(close, lookback))

bullish_w = normalized_price > 0 and normalized_price < 0.5 and normalized_price[1] == 0 and normalized_price[2] > 0 and normalized_price[3] == 0 and normalized_price[4] > 0 and close < high[1]
bearish_m = normalized_price < 1 and normalized_price > 0.5 and normalized_price[1] == 1 and normalized_price[2] < 1 and normalized_price[3] == 1 and normalized_price[4] < 1 and close > low[1]

plotshape(bullish_w,  style = shape.triangleup,   color = color.green,  location =  location.belowbar, size = size.small)
plotshape(bearish_m,  style = shape.triangledown, color = color.red,    location =  location.abovebar, size = size.small)

The following chart shows more signals given by the pattern:

Signal chart

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