M FORMATION VARIATIONS

Caveat!: Any M can sell and as well, any M can fail! But there are Ms with higher probabilities.

M formations can be classified into 3 types based on their behavior with the 13 EMA and success rates.

M STRUCTURE
OUTSIDE STRUCTURE /

1ST LEG
2ND LEG

BOTTOM TIP
/NADIR

Type1 M
This is an M that has its nadir or bottom tip candles closing below the 13 EMA. What that means is that
price pushes up to create an outside structure (1st leg), comes down to close below the 13 EMA, pushes
up again to close above the 13 EMA and then close back below it (2nd leg).

It’s always better to wait for the candle to close below the 13 EMA before selling. The candle that comes
in to close below the 13 EMA is called the shift candle, After the shift candle is formed, often times there
will be a pullback candle within the next 3 candles that form. The pullback candle is usually a fake out
candle. The market maker uses this fake out candle to give one more fake move before the real move.

©Daniel, 2019
Best entry is to wait for the pullback (fake out) candle to form. It usually pulls back to the 38.2 or 50.0 or
61.8 fib ratio of the shift candle. You can use it to your advantage to get a discounted entry by doing a
market execution or setting a pending order at these fib ratios. Yes, that would be selling a bullish candle
because at that time of the pull back, it is still a bullish candle. If you have FOMO (fear of missing out), you
can do a small lot instant execution at the closing of the shift candle while you wait for the pullback, which
doesn’t come all the times though.

Type2 M
This is a type of M where the bottom tip taps the 13 EMA but without closing under it. This M has the
2nd highest best probability after the type1 M. Entry is the same as in the case of type1 M but this time,
with more confirmations or other confluences.

©Daniel, 2019
Type3 M
In this type of M, the bottom tip doesn’t touch the 13 EMA nor close under the 13 EMA. It has the least
success rate amongst the 3 types. It can still be traded but with stronger confirmations or confluences.
However, depending on the degree of your trading skill, you may just be doing yourself a great deal of
good by avoiding this M.

©Daniel, 2019
TDI-Confirmed M
One credible way of confirming an M is using the TDI indicator. See how the TDI confirms the type 2 M
in the picture below. The green ribbon, which is a hybrid RSI, crosses above the signal line (red ribbon in
the TDI) first, then crosses below it, crosses above it again and crosses below it the 2nd time to form an
M shape. The RSI mimics price action (both bullish and bearish candle movements) while the signal line
exemplifies the 13EMA in the main chart.

Besides TDI confirmation, you need other confirmations before staking your dollar in the market.

©Daniel, 2019
Note:
1. If the 2nd leg of an M is nameable, that’s if it forms with a reversal candle pattern such as rail
road track, cord of wood, morning star, evening start or shooting star, you can trade without
waiting for the shift candle to close below the 13 EMA, provided such an M meets other
confirmations.

2. Everything discussed here for an M can be inversely applied to a W.

Best Wishes!

©Daniel, 2019