Big W Identification Guidelines
Characteristic Discussion
Price trend Can be any direction leading to the pattern. Best performance comes from patterns with price trending upward leading to the pattern.
Shape .............A big W shape with twin bottoms and tall sides.
Reversal pattern Look for a double bottom reversal pattern at the base of the big W.
Tall sides .............The best performing big W chart patterns have tall, straight declines leading to the bottom of the big W.
Left side decline The decline leading to the first bottom should be at least 1.5 times the rise between the two bottoms for best performance.
Double bottom ......The double bottom should have twin bottoms with lows less than 4% apart.
Rise between bottoms The rise between the valleys of the double bottom is 10% to 20% or more.
Volume .............Recedes 60% to 63% of the time for up/down breakouts respectively.
Breakout .............Look for an upward breakout. That's when price rises above the right side of the big W.
Confirmation ......The pattern confirms as a valid one when price closes above the highest peak between the double bottoms.
Big W Trading Tips
Trading Tactic Explanation
Measure rule Compute the height from the highest peak (usually the left side of the big W, point A in this example) to the lowest valley (B) and then multiply it by the above “percentage meeting price target.” Add the result to the right side of the big W (upward breakouts, C) or subtract it from the lowest valley (downward breakouts, B). The result is the target price. The link to the left gives more information about the measure rule.
Breakout .....Upward breakouts occur when price closes above the right side of the big W (C). Downward breakouts occur when price closes below the lowest valley in the big W (B).
Stall ...........For swing traders, buy at the double bottom low (E) and ride price upward to confirmation of the double bottom (the high between the two bottoms, D). Price often pauses there. If price drops below the low of the second bottom (E), exit the position immediately. If price confirms the double bottom, expect a rise approaching the left side high (A).
Position traders .Wait for confirmation of the double bottom before taking a position and be prepared to sell as the stock nears the price of the left side high (the price at C approaches the price at A).
Left side high The right side high of the big W (C) reaches the price at the start of the pattern (A) 46% of the time.
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