Option Investor

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W Formation

The W formation is a variation of a double bottom, and is used as an indication of a pending trend reversal. It is called a W formation for its resemblance to a capital W on a chart. In this formation, a stock will trade up to a certain level and pullback to test support. The stock will then move higher, usually to about the same level as the first top. Another pullback to test the same level of support forms the second half of the W. Once the stock trades through the first and second top, it is considered a breakout and a bullish indication.