From M to Reversal: A Complete Guide to Classic Chart Patterns in Crypto Trading

The cryptocurrency market is dynamic and volatile, creating numerous opportunities for analysts and traders. Success in such markets depends on the ability to read price movements and anticipate reversals. One of the most reliable technical analysis tools are classic reversal chart patterns—especially the bearish formation resembling the letter “M” and its mirror image in the form of “W.” These formations help identify turning points in price action and find optimal entry and exit points.

In this guide, we will thoroughly analyze the mechanics of these patterns, their psychological meaning, practical examples, and integration into trading strategies. You will gain all the necessary tools to effectively utilize these figures when trading popular crypto assets.

The essence of the bearish formation: the letter M on the price chart

The bearish reversal pattern visually resembles the letter “M” and consists of two consecutive local highs at the same resistance level. Between the peaks, a correction occurs downward to a certain level (the so-called “neckline”), and the pattern completes with a breakdown of this level downward. This pattern indicates exhaustion of the upward impulse and a transition of the market into a downward movement.

On volatile crypto markets, such formations occur regularly. For example, Bitcoin and Ethereum often show similar reversals during market overheating periods.

Stages of forming the bearish pattern

The development process follows a clear logic:

1. Preceding growth: The asset demonstrates a steady uptrend fueled by buying demand. This may be caused by positive news, increased institutional interest, or speculative hype.

2. First peak: Price rises to the resistance level and forms a local maximum. At this level, it encounters strong resistance from sellers, leading to a pullback downward.

3. Intermediate correction: Price declines to the support level (the neckline), which often coincides with key technical levels such as 50% Fibonacci retracement or previous local lows.

4. Second attempt to rise: Buyers try again to break the resistance level, pushing the price toward the second peak. However, trading volumes decrease, indicating weakening buying momentum.

5. Confirmation breakout: Price falls below the neckline, accompanied by increasing volumes, conclusively confirming a trend reversal.

Psychology of the pattern

The bearish figure reflects the evolution of market sentiment. The first peak shows that bulls have reached their limit. The rebound from the neckline creates false hope for continued growth, but the second failure to break resistance signals exhaustion of buying interest. A breakdown of the neckline downward symbolizes capitulation of bulls and the dominance of bears.

The “W” bullish pattern: mirror image

The bullish pattern is a mirror image of the bearish figure. It forms at the end of a downtrend and signals an upcoming upward movement. On the chart, this formation resembles the letter “W,” where the price tests the support level twice but does not break below it, then begins to rise.

Stages of forming the bullish pattern

1. Downtrend: The asset declines due to bearish market sentiment, sell-offs, or negative news.

2. First bottom: Price reaches a local minimum at the support level. At this level, selling pressure weakens, and buying demand starts to activate. A first bounce upward occurs.

3. Intermediate correction: Price rises to the resistance level (the neckline), often matching previous local highs.

4. Second test of the bottom: Price drops again to the support level but does not break below it. Bears fail to continue pressure, and buyers take control.

5. Breakout upward: Price surpasses the neckline with increased volume, confirming a trend reversal to the upside.

Differences between the two patterns

Practical application: step-by-step scheme

Step 1: Determine the current trend

Before searching for formations, ensure a clear trend exists:

• Use multiple timeframes (1 hour, 4 hours, 1 day)
• Apply moving averages (50-period and 200-period) to identify direction
• Use the ADX indicator to measure trend strength

Step 2: Identify the formation

Look for specific signs:

• Bearish pattern: Two peaks at the same level after an uptrend; key sign — volume decline on the second peak
• Bullish pattern: Two bottoms at the same level after a downtrend; key sign — volume increase on the second touch of the bottom

Step 3: Confirm reversal

Don’t rush to enter:

• For bearish pattern, wait for a candle close below the neckline
• For bullish pattern, wait for a candle close above the neckline

Step 4: Set levels

After confirmation of the breakout:

• Entry: At the breakout point or on the first pullback to the neckline
• Stop-loss: For bearish pattern, above the second peak; for bullish, below the second bottom
• Target: Measured as the height of the pattern (distance from peak/bottom to neckline) and projected from the breakout point

Step 5: Confirm with indicators

Enhance signal accuracy:

• RSI: Overbought above 70( on the second peak of the bearish pattern strengthens the signal; oversold below 30) on the second bottom of the bullish pattern confirms reversal
• MACD: Signal line crossover indicates momentum change
• Volume profiles: Volume increase at breakout is a critical confirmation factor

Real trading scenarios

( Scenario 1: Bearish pattern on BTC/USDT

On the daily chart, Bitcoin showed an uptrend from )000 to ###000 over 10 days. Price touched $50 000, corrected to $65 000, attempted to rise again to $65 000 but failed to break this level. After the second peak, price fell below $60 000 with a noticeable increase in selling volume.

Trading decision: Open a short position at $65 800 with a stop-loss at $60 500 and a profit target at $59 000 $65 the pattern height — $$55 .

Outcome: Price reached the target level (000, yielding 8% profit.

$5 Scenario 2: Bullish pattern on ETH/USDT

On the 4-hour chart, Ethereum declined from )500 to $55 000 ###first bottom$2 , then recovered to $2 200, dropped back to (000 )second bottom$2 , and rose again. Price broke above $2 200 with volume growth.

Trading decision: Enter a long position at (250 with a stop-loss at )950 and a target at $2 500 $2 pattern height — $200$1 .

Outcome: Price reached $2 500, bringing 10% profit.

( Scenario 3: False signal on SOL/USDT

On the 1-hour chart, Solana formed a bearish pattern at $150. After the second peak, price dropped below the neckline )$140$2 , but volumes remained low.

Trading decision: Shorted at $139.

What happened: Price returned above ###without significant momentum. Stop-loss triggered at (with 2% loss.

Conclusion: Lack of volume confirmation led to a false signal. This emphasizes the importance of comprehensive analysis.

Strengths and limitations

) Advantages

• Easy recognition: “M” and “W” formations are visually straightforward, even for beginner traders
• Universal applicability: Work across all timeframes and for various crypto assets
• Reliability with confirmation: Breakouts with increasing volume often lead to significant price moves
• Clear geometry: Allows precise determination of entry, exit, and stop levels

$140 Disadvantages and risks

• False breakouts: Without volume and indicator confirmation, patterns can give incorrect signals
• Market volatility: Sharp swings in crypto markets can distort pattern formation
• Subjectivity in interpretation: Different analysts may define the neckline position differently
• Time-consuming: Requires patience for full pattern development

Enhancing analysis accuracy

To reduce false signals, use additional tools:

1. Fibonacci levels: The neckline or peaks/bottoms often align with 38.2%, 50%, or 61.8% retracement levels

2. Trendlines: Confirm formations by connecting trend points and checking their contact with pattern levels

3. Volume analysis: Volume increase at breakout is essential for reliable signals

4. Monitor news events: Watch for $145 hard forks, regulator decisions###, which can influence market direction

5. Historical testing: Analyze past data to verify strategy effectiveness

Advanced trading approaches

Approach 1: Trading with leverage

On futures markets, leverage can be used. For example, in a bearish pattern on BTC/USDT, open a short with 10x leverage. With a deposit of (, the position size will be ), increasing both potential profit and risk.

Approach 2: Scalping on short timeframes

On 5-minute charts, look for small versions of these patterns for quick trades. For volatile pairs, 1-2% gains in 10-15 minutes are possible.

$100 Approach 3: Combining with technical indicators

• RSI + bearish pattern: Overbought above 70$1 on the second peak enhances the bearish signal
• Bollinger Bands + bullish pattern: Breakout above the upper band confirms upward momentum
• Stochastic: Crossings in overbought/oversold zones add precision

Approach 4: Trading in sideways ranges

When the market moves within a range ###range###, bearish patterns can signal movement toward the lower boundary, bullish patterns toward the upper. Use this for short-term positions.

Pattern behavior in different conditions

( In a bullish market

Bearish formations become rare but especially significant. For example, in 2021, Bitcoin formed such a pattern near )000, followed by a substantial correction. Such patterns in an uptrend often indicate temporary consolidation before continuation.

In a bearish market

Bullish formations often appear at the bottom of a downtrend. In 2022, Ethereum formed such a pattern near $69 000, which preceded a price recovery in subsequent months.

In sideways movement

In a range, formations serve as reversal points at the boundaries. On the BNB/USDT pair, bearish at $1 and bullish at ###can serve as reversal points within the range.

Recommendations for successful trading

1. Practice on historical data: Analyze past market movements, identify formations and their outcomes

2. Set automatic alerts: Configure notifications at key levels for timely signal detection

3. Strict risk management: Limit losses per trade to 1-2% of deposit size

4. Pay attention to volatile pairs: SHIB, SOL, DOGE often form clear and pronounced patterns

5. Maintain a trading journal: Record each trade for error and success analysis

6. Analyze multiple timeframes: Check formations on 1-hour, 4-hour, and daily charts for a complete picture

7. Choose highly liquid assets: Ensures precise and quick order execution

Final conclusions

Bearish formations in the shape of “M” and bullish in the shape of “W” are not just attractive geometric figures on the chart. They are powerful tools for predicting market turning points and determining optimal entry and exit points.

On the volatile crypto market, these patterns occur regularly and provide clear signals when used correctly. The key to success is combining patterns with volume confirmation, using additional indicators, and strictly following risk management rules.

Start by analyzing popular assets like Bitcoin, Ethereum, and Solana across different timeframes. Test your skills on historical data, then apply strategies in real trading. With practice and discipline, you can confidently use these chart patterns to increase profitability in crypto trading.