This is the first pattern that I ever learned. It signals bullish action. What you’re looking for is one candlestick that looks almost like a cross (these are called “doji”). If the stochastic is low, the RSI isn’t too low (not less than 30) and volume (in the chart here there’s no volume because volume doesn’t function the same way in the forex market) is high, then you’re on your way to forming a “W”. What you want to look for next is a burst of strength to the upside; this will form your center point. Eventually you will use this as a confirmation. Watch for another pullback creating a higher low point. This candlestick will likely be shorter than the previous base, although this too could be a doji. Look for the stochastic to be oversold again, but not quite as low as before. As the chart shifts off the low look for an increase in the RSI that surpasses the previous reading. It’s good if this continues going up–the stronger the better, until somewhat over 70 (then the chart may be getting top heavy). In any case, the “W” formation is confirmed as long as the RSI continues upward and the candlesticks pass the mid-point in the “W”. In my experience, it tends to be a reliable indicator. Again, the more volume on the two bases and the stronger the RSI the better.
KPS: My links are nearly all cleaned up and the post labeling is done on all back posts! Something to be proud of =) I am developing my own resolutions chart (a la Happiness-Project) and have come up with several ideas to improve the blog. More later.