M & W patterns with RSI

Setup

• Chart: weekly candles with RSI(14) in a lower pane
• Look for M (double top) or W (double bottom) forming over 6-16 weeks
• Peaks/troughs should be roughly equal in price; the neckline is the intermediate low (M) or high (W)
• Critical: RSI at the second peak/trough must show divergence — lower RSI high on M pattern; higher RSI low on W pattern

Entry

W (long): enter on the weekly close breaking above the neckline (the middle high). M (short): enter on the weekly close breaking below the neckline (middle low). Wait for CLOSE, not intra-week wick.

Exit

Target = height of the pattern projected from the neckline. Take partial profit at 50% of target; ride balance with a trailing stop below new weekly swing lows.

Stop-loss

Just below the second trough (W long) or above the second peak (M short). Reversal patterns need firm invalidation levels.

When it works

• Clean pattern with clearly separated peaks/troughs (not overlapping)
• RSI divergence is present at the second turn — this is the highest-conviction signal
• Volume expansion on the neckline break — confirms real participation

When it fails

• Pattern is malformed — different peak/trough heights, no clear neckline
• No RSI divergence — pattern alone without momentum confirmation is a lower-probability trade
• Neckline break on weak volume that gets bought back within 1-2 weeks

General trading rules that apply

Regardless of the specific setup, these apply to every strategy on this site:

• Never risk more than 2% of your account on a single trade
• Place a hard stop-loss before entering — no exceptions
• Journal every trade: setup, reason, outcome, one lesson
• After two consecutive losses, stop for the session
• Backtest and paper-trade for a month before deploying real capital