W pattern

 

The W pattern in technical analysis is a bullish reversal pattern that signals a potential upward trend after a downtrend. Here are its key characteristics:

1. Shape & Formation

• Resembles the letter “W” on a stock chart.

• Forms after a downtrend and indicates a potential trend reversal.

• Consists of two troughs (lows) and a resistance level (neckline).

2. Key Components

• First Low: The price drops, forming the first bottom.

• Temporary Rebound: A minor price rally occurs but fails to break a resistance level.

• Second Low: Price declines again, often testing or slightly surpassing the first low.

• Breakout: If the price rises and breaks above the resistance level (neckline), it confirms the pattern.

3. Volume Confirmation

• Increasing volume near the second low and during the breakout strengthens the bullish signal.

• Low volume at the first rebound suggests the uptrend isn’t ready yet.

4. Support & Resistance

• The lowest points of the "W" act as support levels.

• The middle peak of the "W" forms the resistance (neckline), which must be broken for confirmation.

5. Confirmation Signal

• The pattern is confirmed when the price breaks above the neckline with strong volume.

• A retest of the neckline after breakout may occur before the stock moves upward.

6. Target Price Calculation

• Height of the pattern = Distance from the lowest point to the neckline.

• Expected upside move = Breakout price + Height of the pattern.

7. Variations

• Double Bottom: A classic W pattern with two clear bottoms.

• Adam & Eve Pattern: One sharp V-bottom (Adam) and one rounded bottom (Eve).