W/M Reversal Trade Checklist

This mdBook captures the W Bottom and M Top reversal method as a concise pre-trade checklist. It encodes the hard rules from the "Tops Version 2.0" training so you can prepare charts, validate a setup, and place trades consistently.

Notes

• Use this as your single pre-trade routine. Do not skip steps.
• Where a term appears like Neckline or PCL, click through to the Terminology section for a crisp definition.
• When you see an image marker like [10:24], it indicates a timestamp in the source video where a visual example is shown. See TRANSCRIPT-TO-BOOK for how images are extracted.

Scope

• Timeframes: primarily H1 and H4. Do not trade below H1 for this method.
• Instruments: FX, indices, commodities, stocks; crypto with caution.

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 3 hours of a relevant three-star event.
  • Do not take trades within 2 hours of a relevant two-star event. [10:24]
• H4 rules:
  • Ignore two-star events.
  • Avoid trades within 3 hours of a relevant three-star event.
  • Exception: NFP and FOMC/interest-rate decisions → avoid within 6 hours. [11:00-11:10]
• 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]
• Relevance: global releases (e.g., US NFP) can move many pairs; minor local releases usually move only related instruments. [09:00-10:00]

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 bid price. Entry rules differ because of bid/ask spread.
• W Bottom (long): entry = neckline + 0.5 pip + broker spread. [09:15]
• M Top (short): entry = neckline − 0.5 pip. Do NOT add 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 on the right side; you may ignore one rogue wick. No spread adjustment needed. [23:11]
• M Top (short): SL = 1 pip above the selected swing high + broker spread (stops buy-to-close at ask). [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:
  • Baseline: set TP at the validated PCL. [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
• 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+spread; M: NL−0.5)
• SL set (W: 1 pip below low; M: 1 pip above high + spread)
• PCL measured (NL↔SL) and validated on prior bodies
• TP at PCL; plan for inefficiency runner if applicable
• Position size calculated (risk 0.5–2%) and order placed
• Recheck news before triggering; manage per plan

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.

Creating your schedule

1. Establish times when you'll be studying / trading 1.1. Communicate them with your family
2. Commit to the times
3. Make a daily achievment chart

Why is this important

It creates discpiline, consistency and an understanding of the price action that is common at those times of the day.

Clarity of mind => profitability

How do you do it ?

Analyse your daily movements and commitments to see whan you'll be available on a daily basis. Commit to the times that you can. Tell your family and friends.

Commit

It's important to commit to this and build a habit out of it.

Barriers you'll face

• Life goets in the way - there are distractions
• You may find it dificult to work from home.
• Properly analyse your daily routine to identify barriers and make a plan to overcome them.

Overcoming these barriers

• Beingc disciplined and focused - mentally commit to the trading time periods
• tell you family an friends waht you are doing and whe nyou are doing it so they can know and support you.

Stay motivated

• Contrate on your end goal
• It may be tough at times, but if it's worth having it'll cost

How to remain consistent

• Establish aworking time periods of rstudy, practice, ananlysis and trading
• Create a chart to track your progress, and fill it in with ticks or stars for days that you achieve your working periods.
• Adhere to your established working time periods and track your progress consistently.
• Reward yourself for a full week of achievements to help sty motivated and on track with your trading goals.

Example rewards for consisteNcy

• take a break and to do something enjoyable,
• spend time with family or friends
• Read a book or watch a movie
• Treat yourself to a favorite snack or drink
• Engage in a hobby or activity you enjoy, such as playing a sport or working on a craft project.
• Make it known that the reward is for sticking to your schedule.

An unstructured traider looks like

Struggling to find consistent periods of the day ot trade. Randomly going into the course or charts whenever you get a few minutes. Getting very few tickts/stars on the daily achievement chart.

A somewhat structured trader looks like:

Mostly finding that you adhere to the time frames - but you are still getting distracte from time to time and losing focus.

Getting more ticks/starts on yuor chart than not, but not achieving a full week.

A fully structured tradier looks like:

Fully focused and commited to the time slots. Nothing gets int he waoy of your trading "job", relishing the time in front of the charts aor studying the courses.

Always bieng rewarded at the end of the week as you will have a full-house of daily ticks/stars.

Action items

• Download the checklist and project sheet
• Move onto the next lesson and complete the project.

Making a watch list

Why is it important

• Focused approach
• Over time you will develop a good understanding of how the price of each instrument moves
• Better risk management - easier to manage risk exposure
• Enable's you to identify potential trading opportunities in advance and flag them
• Set up technically analysed charts for each instrument
• Consistency

Without your watch-list:

• have a non-focused approach and random searching for opportunities.
• You may waste time and find it difficult to control risk (or see correlated instruments etc.)
• A trader doesn't build up a knowledge base of the price movement nuances of each instrument, the chart will not have been technically analysed before and marked up with key price levels etc.

Head and Shoulders

Appropriate time frame

Why is this important

• If you identify the pattern on too high a time frame, you can miss opportunities.
• If you identify the pattern on too low a time frame, you can get false signals.

Identify candle 1

1. Find the anchor point (bottom of left shoulder, bottom of candle body (not wick)), extend left. 1st candle body you hit is candle 1.
2. Find the end by extending the anchor point through the bottom of the right shoulder, to the outside of the shoulder candle body. This is the last bar.

Assess the time frame

On the 15 minute or 1 hour charts, the pattern length should be 30-120 candles (inclusive).

If there are too few, go down a time frame. If there are too many go up a time frame. Then re-asses.

On the 4 hour chart There should be 30-180 candles.

On the Daily chart - there should be between 30-210 candles.

Minimum 15 minutes. Maximum weekly.

Pattern completion level

We get the take profit from the pattern completion level (PCL).

1. Measure vertical distance from top of head (including wicks or body; you can ignore rogue wicks.
2. Continue it the same distance past the neckline. That is the PCL level
3. On the horizontal line where the PCL level is, look left to find a candle body. 3.1. Has price been there before ? 3.2. 3.3. In this example, if we use the wick in the head, the price has practically has never been to the PCL level before, so in this case, you'd consider not including the wick: 3.4. In this example, price has never been to the PCL before, so the pattern is not valid:

Barriers to overcome

• You have to trust your own judgement.
• Use the rules and your checklist.
• Practice.

Road to success

• Just scroll back in time to find some
• See if you can find some in replay mode
• Demo
• Live 1 unit
• Live

Eta to mastery: 6-12 months

News

What we'll learn

• How to be aware of upcoming economic news releases and earnings reports
• How to use the news calendar or earnings report website
• How to understand which news releases affect which instruments, and how much potential move to expect

9 phrases to know

• Economic Indicators: These are statistical data points that provide insights into the health and performance of an economy.
• Central Bank Decisions: Central banks decisions play a crucial role in monetary policy, such as monetary policy statements.
• Non-farm payrolls (NFP): This refers to monthly employment report released by the US Bureau of Labour Statistics.
• Inflation Rate Decisions: Central banks' set interest rates as part of their monetary policy and they can impact currency valuations and market sentiment.
• Inflation Data: Inflation measures the rate at which the general level of Prices for goods and services is rising and, consequently, eroding purchasing power.
• Gross Domestic Product (GDP): GDP is ak key measure of economic activity and represents the total value of goods and services produced within a country.
• Speeches by Government Officials: Public speeches by government officials can provide valuable insights into the economic policies and outlook of a country.

Use an economic calendar

• https://www.forexfactory.com/calendar/
• https://www.investing.com/economic-calendar-/
• https://www.fxstreet.com/economic-calendar

For earnings reports

• Trading View
• https://seekingalpha.com/earnings/earnings-calendar
• https://www.benzinga.com/earnings
• https://www.investing.com/earnings-calendar/

When not to trade.

In Forex Factory, 2 star == Orange, and 3 star == Red

Filter for this week.

Why not trade ? Institutions use the news to wipe out orders and get liquidity, especially around news events.

Key points

1. Be aware of upcoming news releases
2. Use a good economic news calendar
3. Understand what releases affect which instruments and which events have the potential to move the markets the most
4. Understand how far ahead you need to look.
5. Experience counts.