Glossary

Comprehensive terminology for W/M reversal trading. Terms are arranged alphabetically.

ATR (Average True Range)

A volatility indicator measuring the average range of price movement over a specified period. Used to scale expected hold windows and assess instrument volatility.

Bid/Ask Spread

The difference between the bid price (where you can sell) and ask price (where you can buy). Forex charts typically show bid prices, which affects entry and stop placement rules differently for longs vs shorts.

Broker Spread

The cost charged by your broker, measured in pips, between the bid and ask price. Critical for validating minimum stop loss sizes (must be ≥10× spread).

Candle Body

The rectangular portion of a candlestick between the open and close prices, excluding the wicks. Used for neckline placement and pullback depth measurements.

Candle Count

The number of candles from the first candle body that aligns with the neckline level to the candle that breaks the neckline. Valid range: 7–30 candles inclusive.

Divergence

When price makes a higher high (for M) or lower low (for W) while an oscillator (like RSI) makes a lower high or higher low at the same swing points. Used only as confluence, never as a standalone entry signal.

Economic News Filter

Time-based rules to avoid trading near high-impact economic releases:

  • H1 timeframe: No entry within 3h of relevant 3-star/red events; no entry within 2h of relevant 2-star/orange events
  • H4 timeframe: Ignore most 2-star events; no entry within 3h of relevant 3-star/red events (6h for NFP/FOMC)

Entry Level

The precise price where your pending order triggers:

  • W Bottom (long): neckline + 0.5 pip + broker spread
  • M Top (short): neckline − 0.5 pip (no spread added)

Expected Hold Window

Estimated time from pattern formation to PCL completion. Calculated as the time from the start of the run-up/run-down into leg 1 to the first touch of the neckline. Optionally scaled by ATR ratio.

Fair Value Gap (FVG)

See Inefficient Candle.

Impulsive Move

A strong directional move characterized by large, same-color candles with shallow pullbacks. Indicates momentum and is a prerequisite for valid M/W patterns.

Inefficient Candle

A price move that leaves an imbalance or gap in trading activity, often appearing as a candle with minimal overlap with adjacent candles. May act as a magnet for future price action. Also called Fair Value Gap (FVG).

Invalidation

When price action breaches hard rules that negate the M/W setup. Common triggers:

  • Neckline fails decisively in the wrong direction
  • Structural break that negates M/W geometry (e.g., higher high in M short)
  • Adverse liquidity sweep removes the setup's edge
  • Material news event flips conditions

Leg

One of the two comparable swings forming the M or W pattern (left leg and right leg). Also called "side."

Liquidity Pool

A price level where many stop losses or pending orders are clustered, often at round numbers or obvious swing points. Price may seek these levels before reversing.

Liquidity Sweep

When price briefly trades through a prior high (for M) or low (for W) to trigger stops/orders, then snaps back. A failed sweep near the neckline increases pattern probability.

M Top

A double-top-style reversal pattern where price forms two swing highs (peaks) before reversing lower. Used for short/sell trades.

Manual Close

Rule-based discretionary exit before SL/TP when conditions degrade:

  • Structure turns against the setup
  • Inefficiency forms against position
  • High-impact news imminent
  • Momentum stalls at adverse liquidity pools

Neckline

The horizontal reference level used to confirm and trigger the M/W pattern:

  • M Top: horizontal line at the lowest body between the two highs (not the wick)
  • W Bottom: horizontal line at the highest body between the two lows (not the wick)

1R (One R)

The risk unit for a trade, calculated as the absolute distance between your entry (neckline) and your true stop loss. Used to measure reward multiples (e.g., 2R = twice your risk).

Formula: 1R = |neckline − true SL|

Pattern Completion Level (PCL)

The target level where the M/W pattern is expected to complete, calculated by projecting 1R distance from the neckline in the trade direction:

  • W Bottom: PCL = neckline + 1R (above neckline)
  • M Top: PCL = neckline − 1R (below neckline)

Must validate by extending a horizontal line left—it should intersect bodies of the prior impulsive move.

Pending Order

An instruction to your broker to buy or sell at a specified future price. For M/W patterns:

  • W Bottom: Buy Stop (triggers when price rises to entry level)
  • M Top: Sell Stop (triggers when price falls to entry level)

Previous Price Action (PPA)

Analysis of recent structure before pattern formation to assess probability:

  • Strength/weakness into the level (impulsive vs. corrective)
  • Liquidity sweeps and follow-through
  • Nearby highs/lows and session levels
  • FVG/inefficiency confluence
  • Clean retests vs. messy chop

Pullback Depth

The retracement between the two legs of the M/W pattern, measured from the extreme of the first leg to the lowest/highest body of the pullback:

  • Preferred: ≤40% of the impulsive move
  • Hard maximum: 50% of the impulsive move

R-Multiple

A measure of distance expressed in risk units (R). Example: if 1R = 20 pips, then a roadblock 15 pips away = 0.75R.

Retest

When price returns to test a previously broken level. Not required for M/W entry (patterns often go straight to target), but can provide lower-risk entry if it occurs.

Risk Management

The systematic control of position size and stop placement to limit account drawdown. For M/W patterns:

  • Risk per trade: 0.5–2% of account (1% common default)
  • Minimum SL size: ≥10× broker spread
  • Never widen stops to "fit" a setup

Risk-to-Reward Ratio (R:R)

The ratio of potential profit to potential loss. For M/W patterns, realistic 1:1 targets are often optimal. Includes spread in calculations.

Roadblock

Any technical or contextual obstacle between entry and PCL that can hinder price reaching the target:

  • Weekly trend lines
  • Strong support/resistance levels
  • Fresh opposing inefficiencies/FVGs
  • Liquidity pools
  • Major session levels

If a roadblock is <1R away, consider skipping, waiting for clearance, or targeting just before it.

Rogue Wick

An isolated, unusually long wick that appears anomalous compared to surrounding price action. May be ignored for neckline and SL placement in specific cases (max 1 per side), using candle bodies instead. Must recompute 1R and verify SL still ≥10× spread.

Session Levels

Key price levels associated with major trading sessions (Asian, London, New York opens/closes). Active sessions amplify moves; illiquid periods favor chop.

Square-Up Level

The price level where an inefficient candle (FVG) is expected to be "filled" or balanced by opposite price action. May serve as an extended target beyond PCL for partial profit management.

Stop Loss (SL)

The protective price level where the trade is automatically closed to limit loss:

  • W Bottom (long): 1 pip below the selected swing low (may ignore one rogue wick)
  • M Top (short): 1 pip above the selected swing high + broker spread

Never widen stops to accommodate roadblocks.

Support and Resistance (S/R)

Price levels where historical buying (support) or selling (resistance) pressure has been strong. Major S/R between entry and PCL acts as a roadblock.

Swing High/Low

A local peak (swing high) or trough (swing low) where price reversed direction. Used to identify M/W structure and define stop loss levels.

Take Profit (TP)

The target price level where you plan to close the trade for profit. Typically set a few pips inside the PCL for fill reliability. Optional partials near 1R while keeping overall R:R ≥1.

Timeframe

The duration each candlestick represents (e.g., H1 = 1 hour, H4 = 4 hours). M/W method trades primarily on H1 and H4; do not trade below H1.

Trend Line (TL)

A diagonal line connecting a series of swing highs (downtrend) or swing lows (uptrend). Weekly trend lines between entry and PCL invalidate the setup.

True Stop Loss

The stop loss price after accounting for spread and buffer:

  • W Bottom: swing low − 1 pip (no spread adjustment)
  • M Top: swing high + 1 pip + broker spread

Used to calculate 1R accurately.

W Bottom

A double-bottom-style reversal pattern where price forms two swing lows (troughs) before reversing higher. Used for long/buy trades.

Wick

The thin line extending above and below a candle's body, representing the high and low prices during that period. Generally respected for stop loss placement unless identified as a rogue wick.