Today, I want to share a forex trading strategy with you, called WhaM. This trading strategy is so easy to use, even your parents would be able to trade it. I reckon even your dog could trade this. This trading strategy is not created by me. I read about it a long time ago from Will at wmd4x.
This is my interpretation of the system and how I currently trade it. Everything you need to know to adopt this strategy is right here, in this article. The WhaM forex trading strategy is a strategy that uses specific chart patterns as the base for low-risk entries on trades with a high probability of success.
Specifically, we will look at double tops and double bottoms that look like the letter M or W. Once such a pattern is identified, we will take an entry at the nose of the pattern the middle of the letter. I trade it on the 4H chart, but it also works on higher and lower time frames. When trading this system, you will want to start out with clean line charts. The reason we use line charts and not candlestick charts is very simple: We want to see the patterns as clearly as possible.
At some point, it is helpful to switch to candlestick charts, since line charts will not always show us how far the wicks of candles reach. In order for us to determine whether to enter, the stop loss and the take profit, it can be useful to switch to candlestick charts.
As said, we look for two types of chart patterns: Not only that, but they need to be shaped like the letter W or the letter M see where that catchy WhaM name comes from? Once we have found such a pattern, we set a pending buy for W or sell for M at the nose of the letter the middle bit. See the clean W shape? If we would have set a pending buy at the nose of the W pattern, what would have happened? As you can see, I have set a pending order a sell limit order at the nose of the M pattern, with a stop loss above the M pattern and a take profit below the M, for a risk to reward ratio of 1: And we have a winner!
Our pending sell order got triggered when the price retraced temporarily, only to plummet down and take out our take profit level. Try to find similar W and M patterns and see how the price behaves afterwards.
Does the price often return to the nose of the pattern? Is there often a reaction once the price reaches this point? What do you think is important when looking for good W and M setups?
Why would a simple thing like the shape of some letters actually work as a profitable forex trading strategy? Regardless of the W or M pattern, double tops and double bottoms are a powerful existing chart pattern. Plenty of traders have been very successful in using double tops and double bottoms to trade trend reversals. Once a double top or double bottom occurs, it is often followed by a change in price direction.
The WhaM trading system only places trades in the direction of that reversal indicated by the double top or double bottom. As the W and M patterns are formed, price finds support for the M pattern or resistance for the W pattern in the nose.
There is an often strong reaction around that zone where buyers and sellers will battle for the direction of the price. When the W and M pattern is completed, however, that level has broken. The support has turned into resistance and the resistance has turned into support. Price will often retest those specific levels, which is why the WhaM trading system works. Plenty of traders exclusively trade break and retest patterns, so even this can be a very good and profitable trading system on its own.
I have experimented with this method on the daily chart, this also works very well. It is, however, a bit too slow for my liking. Trading it on lower time frames also works, but as with most strategies, the lower the time frame, the lower the win rate. On the other hand, a lower timeframe might give you more opportunities to enter. This enables you to play out your edge more often, which is a benefit.
Once a W or M pattern has formed, you can put a pending buy or sell at the nose. Before I do so, however, I check the following things. Since that might not be very descriptive, let me give you an example. The chart below contains a W or M, depending on how you look pattern, but it is much too small in the overall context of the price action of the past period. Every time you find a WhaM pattern, think to yourself: Is this really a clean W or M-shaped pattern?
The examples at the beginning of this article are clean. Conversely, look at the following examples:. Of course, you can recognise a W or M in these, but they are really not clean enough to be traded. Ideally, you want to see a long first leg in one direction, then the pattern and then a long final leg in the opposite direction. Ok, this might sound weird, but hear me out. The stronger the initial reaction that forms the nose, the more likely the setup will work.
You will want to see a sharp reaction, with the price just touching a level and bouncing back. It means that there is no clear majority of either buyers or sellers and the level at the nose is not very strong. This, in turn, means that it will be less likely that we see the reaction we want.
In my experience, the patterns work best if it is the first time that the price reaches the nose of the WhaM pattern again. The stop loss can usually be placed a few pips above the M-pattern or below the W-pattern. Consider for example the following chart. If we were to just set our stop loss levels using the line chart, we might have risked placing them too close to our entry. Instead, it would be better to place them above the wicks of the candles.
Putting our stop loss a little bit beyond that level will give us a better chance of not being stopped out, as we can see here:. The take profit should be at least the size of the stop loss, giving you a risk to reward ratio R: Often, if the retest of the nose triggers a sustained move in the opposite direction, we can see that a R: The take profit level could also be determined based on the relative strength of the level of the nose.
It might very well be that the level of the nose is exactly at a strong zone of previous support or resistance. In that case, it would be more acceptable to use a bigger reward-to-risk ratio, as we can anticipate a strong reaction at that level. This means that I first will decide where my stop loss should be based on the pattern.
This ensures that my equity curve increases smoothly and potential drawdowns will never get too large. This forex trading strategy is surprisingly simple. If you decide to give this system a go, I urge you to not just take the things I said for granted, but instead, do your own due diligence and test the system for yourself.
I'm a full-time, independent forex trader. I've been trading for over 10 years and specialize in price action trading, reversal trading, trading psychology and algorithmic trading. If you're determined to become a pro trader, I offer select consulting and coaching services.
When I'm not trading, I'll either be travelling the world or rock climbing likely both. Read my story here. February 12 - Smart Forex Learning. February 19 - Smart Forex Learning.
Your system seems subjective making it difficult to backtest. THis is because you may see dogs ears when trading intiially but later on the chart it may look like cats ears. Are you still trading this? Hi Gary, thanks for your comment. I agree that there is some degree of discretion involved in deciding if the pattern is tradable or not. As for the backtesting: If you want to, you could decide on some rules that provide a more stringent mechanical approach.
This could be anything like: The pin and drive reversal entry trigger - Smart Forex Learning. May 20 - Smart Forex Learning. July 9 - Smart Forex Learning. Please consider carefully if such trading is appropriate for you. Past performance is not indicative of future results.
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WhaM, a trading system without indicators or candlesticks. If you can read, you can trade it. You might also like this: Felix I'm a full-time, independent forex trader.More...