Trade Checklist: W Bottoms and M Tops

Use this end-to-end checklist to take a single high-probability W Bottom / M Top trade. Follow every step. Terms in the checklist link to the Glossary for detailed definitions.

  • Timeframes: trade on H1 or H4 only. Do not go below H1.
  • Instruments: FX, indices, commodities, stocks. Crypto with extra caution.

1) Pre-Trade Safety: Economic News Filter [10:24]

  • Filter calendar for relevant two-star/orange and three-star/red events.
  • H1 rules:
    • Do not take trades within 8 hours of a relevant three-star event.
    • Two-star events can generally be ignored on H1+ (they get "soaked up" by the larger timeframe).
    • Exception: if a two-star event is a current "hot topic" (e.g., inflation data during high-inflation periods), treat it like a three-star.
  • H4 rules:
    • Same as H1: avoid within 8 hours of three-star events.
    • Ignore two-star events unless they're hot-topic related.
  • USD three-star events affect virtually everything - not just USD pairs. If there's a big US release coming, it will likely affect all currency pairs, commodities, and indexes.
  • EUR events often affect GBP and CHF as well (they're correlated).
  • If a relevant three-star release is imminent and you have open trades → close them (profit or loss). Spreads widen and slippage is common. [11:20]

2) Prepare Chart: Weekly Trend Lines [18:29]

  • Open a weekly chart, zoom out 10–20 years if available. [18:59]
  • Draw trend lines through the most obvious pivot highs and pivot lows; extend to the right. [19:30]
  • Rule: if any weekly trend line lies between your planned entry and Pattern Completion Level (PCL), pass the trade. [23:17]

3) Identify Candidate W/M Pattern

  • Structure: an impulsive move, a pullback, and a second test to a similar level (tops for M, bottoms for W). [32:30]
  • Pullback depth: the lowest/highest body of the pullback should not exceed 40% of the preceding impulsive move; 50% is a hard maximum. If >40% generally pass. [29:30]
  • Rogue wicks: you may ignore at most one obvious rogue wick per side of the pattern. [35:00]

4) Draw the Neckline [33:00]

  • M Top: draw a horizontal line at the lowest body of any candle between the left and right highs.
  • W Bottom: draw a horizontal line at the highest body of any candle between the left and right lows. [33:00-36:00]

5) Validate Correct Timeframe (Candle Count) [51:40]

  • From the neckline price level, move left until you meet a candle body: that is candle #1.
  • Count forward until the first candle breaks the neckline; that is the last candle.
  • Valid count: 7 to 30 candles inclusive. [51:40]
    • If ≤6 candles, go down one timeframe (but never below H1); reassess the whole setup.
    • If >30 candles, go up one timeframe; reassess from Step 3.

6) Define Entry Level (Pending or Market) [57:22][09:15]

  • Charts show the mid price (halfway between bid and ask). Entry rules account for half-spread adjustments.
  • W Bottom (long): entry = neckline + 0.5 pip + half spread (you buy at ask = mid + half spread). [09:15]
  • M Top (short): entry = neckline − 0.5 pip − half spread (you sell at bid = mid - half spread). [57:22]
  • Set a pending order (buy stop for W, sell stop for M) at the computed level; or set an alert just before the neckline and place a market order on the break.
  • Do not wait for a retest; these patterns often go straight to target after the break. [57:20]

7) Place the Stop Loss (SL) [23:11-24:35]

  • W Bottom (long): SL = 1 pip below the selected swing low − half spread (SL triggers when bid hits level = mid - half spread). You may ignore one rogue wick. [23:11]
  • M Top (short): SL = 1 pip above the selected swing high + half spread (SL triggers when ask hits level = mid + half spread). [24:00-24:35]
  • Minimum SL requirement: SL distance must be ≥ 10× broker spread. See Risk Management.

8) Compute Pattern Completion Level (PCL) and Take Profit (TP) [39:14]

  • Measure vertically from neckline to SL distance (in pips). This is 1R. [39:14]
  • Project the same distance from the neckline in the trade direction; draw a horizontal line. This is the PCL. [39:20-40:20]
  • Validate PCL: extend a horizontal line left; it should intersect the bodies of the prior impulsive move. If it does not, pass the setup. [42:10-43:10]
  • TP plan (mid-price charts require half-spread adjustments):
    • W Bottom (long): TP = PCL − half spread (TP triggers when bid hits level = mid - half spread).
    • M Top (short): TP = PCL + half spread (TP triggers when ask hits level = mid + half spread).
    • This ensures the trade achieves true 1:1 R:R after accounting for spread on both entry and exit. [43:40]
    • Optional scaling: if an Inefficient Candle exists beyond PCL, consider taking partial profits at PCL and let a remainder run to its Square-Up Level. [1:27:30]

9) Roadblocks Check: Trend Lines and Inefficiencies [22:45][1:27:00]

  • Weekly trend line between entry and PCL → pass the trade. [23:17]
  • Inefficient candle square-up between entry and PCL:
    • If very close to entry, high risk of immediate reversal → pass. [1:39:10]
    • If beyond PCL, you may aim TP to PCL only (1:1 often sufficient), optionally manage a runner to square-up. [1:44:10]
  • Convert obstacle distance to R-multiple: distance_pips ÷ 1R. If <1.0R, treat as material roadblock.

10) Position Sizing and Orders [14:00-16:00]

  • Risk per trade: 0.5%–2.0% of account; 1% is a common default. Use a position size calculator with your SL distance. [10:10-10:30]
  • Enter order details precisely: entry, SL, TP, volume. Double-check spread adjustments per pattern direction.
  • See Risk Management for full details.

11) Final Sanity Checks

  • News window safe? [Section 1]
  • Candle count valid (7–30) and timeframe confirmed? [Section 5]
  • Neckline and PCL validated against prior impulsive bodies? [Sections 4, 8]
  • No weekly trend line blocking path? [Section 2]
  • Roadblocks understood and plan set (partial TP or pass)? [Section 9]

12) Manage and Exit

  • On imminent relevant three-star news → exit open trades; do not rely on stops (slippage/spreads). See Manual Close. [11:20]
  • If price stalls at a known roadblock near entry, consider invalidating or reducing risk per your plan. [1:55:00]
  • Otherwise, let the trade work; avoid emotional changes to SL/TP.
  • See Manual Close Conditions for rule-based discretionary exits.

Ultra-Compact Checklist

  • News safe window confirmed (H1/H4: 8h from 3-star; USD 3-star affects everything)
  • Weekly trend lines plotted; none block entry→PCL
  • Valid W/M structure; pullback ≤40% of impulse; rogue wicks ≤1/side
  • Neckline correct; candle count 7–30 on chosen TF
  • Entry set (W: NL+0.5+half spread; M: NL−0.5−half spread)
  • SL set (W: 1 pip below low − half spread; M: 1 pip above high + half spread)
  • PCL measured (NL↔SL) and validated on prior bodies
  • TP at PCL adjusted (W: PCL−half spread; M: PCL+half spread); plan for inefficiency runner if applicable
  • Position size calculated (risk 0.5–2%) and order placed
  • Recheck news before triggering; manage per plan