In 1971, Robert A. Levy made the first attempt to systematically classify price patterns. He categorized five-point patterns, defined by price swings influenced by stock volatility, and tested their significance. Although he was unable to identify any substantial forecasting power, he introduced a valuable concept: the five-point categorization of time-price patterns.
the pattern forms an M. If the first swing is downward, the pattern is a W. «
Arthur A. Merrill, 1984.
Merrill's 16 M and 16 W wave patterns, and their statistical occurrences: Are some of these patterns bullish?
Are some bearish? When a certain pattern occurred in the past, what happened to prices after the pattern?
Merrill organized five-point patterns based on the sequential order of points from high to low, creating a structured taxonomy of "Ms" and "Ws". He identified 32 distinct patterns, grouping them into two categories: 16 resembling a capital M and 16 resembling a capital W. He then highlighted six subcategories, based on classical chart pattern names used by market technicians:
Uptrends M15, M16, W14, W16
Downtrends M1, M3, W1, W2
Triangle M13, W4
Head and Shoulders W6, W7, W9, W11, W13, W15
Inverted Head and Shoulders M2, M4, M6, M8, M10, M11
Broadening M5, W12
Downtrends M1, M3, W1, W2
Triangle M13, W4
Head and Shoulders W6, W7, W9, W11, W13, W15
Inverted Head and Shoulders M2, M4, M6, M8, M10, M11
Broadening M5, W12
For example, an M1 is a strongly descending pattern, while the middle patterns, M8 and M9, are flat. An M16 is a strongly ascending pattern. Similarly, a W1 is a descending pattern, the middle Ws are flat, and a W16 is an ascending pattern.
So, what is the practical application and benefit of Merrill's weird-looking M & W Wave Patterns in trading? They can be used to identify
support/resistance levels, determine areas of interest, anticipate market direction and reversals, project extensions, define entry and exit points, and manage
risk.
Larry Williams, 2000.
How? You may want to watch the following video, as well as review the references and recommendations provided below.
Reference:
See also: