The WoW trade and how to trade a Trendline break at higher timeframes zones

16th May 2014, 01:41 PM

The WoW trade is one of the most important additions to Set and Forget's set of rules. You must understand
the Realignment lesson before adding it to your trading plan since nesting and realignment concepts go hand in
hand.

WoW is an acronym for the way this type of pattern looks. It's essentially a W or inverted W (a M shape) formed
once a Higher Timeframe has been hit, price is over-extended and/or a trendline has been solidly broken. I could
have named it WoM trade but it didn't sound as good as WoW

The WoW trade is the brand new imbalance created at the break of the trendline and/or at the origin of that
trendline break. It's one of the two methods we use to locate new imbalances on a price chart. The WoW trade has
to be supported by a bigger timeframe or a bigger timeframe confluence bigger than the timeframe where the
potential WoW trade has been located. The new imbalance can be a swing (valley/peak) or a CP, it can happen
before the TL is broken or at the TL confluence.
AUDCAD WoW TRADE
AUDCAD monthly chart shows a clear monthly WoW setup. The WoW trade is the imbalance created at the break
of a trendline at #1 and/or at the origin of the move that causes the break of the trendline at #2. M SZ at #3 is
created by breaking M DZ at #1
EURSGD D1 WoW LONG AT MONTHLY DEMAND
The WoW trade is the imbalance created at the break of a trendline or at the origin of that break. Both are valid
imbalances. The WoW trade has to be supported by a bigger timeframe imbalance or a bigger timeframe confluence
bigger than the WoW imbalance.

Both D1 demand zones at #2 and #3 are considered WoW trades as per the definition. Nested at a HTF Monthly
demand at #1 that took two opposing monthly supply zones at #4 and #5 out

The WoW trade is a high probability confirmation setup that if done correctly with the support of the bigger
picture trend, can yield great results. Be careful with this pattern though because when you start looking for them,
you will start seeing WoW trades "everywhere", pay attention to where the pattern occurs and follow the rules laid
out below, otherwise you will have unnecessary losses.

The WoW trade bar is perhaps the most powerful trade setup that has been introduced to the strategy. If I could
pick only one supply and demand pattern to trade with for the rest of my life, I would probably pick the WoW trade.
However, despite its simple structure, the WoW trade can be very tricky to trade if you don’t know how to
distinguish a good WoW from a bad one.

I see many traders making the same mistakes over and over with WoW trades; many trade every WoW they see,
they give no consideration to the market context the WoW formed within, they constantly try trading counter-
trend WoW trades and many other mistakes.

The fact of the matter, is that there are many subtleties to trading WoW trades that you must understand if you
ever hope to trade them successfully. So, without further ado, let’s start with the WoW trades.

Any price action setup is going to have a better chance of working out with the power and momentum of a market
trend behind it. There are numerous reasons why markets trend, but the exact reasons don’t really matter. All we
care about is that a market is or isn't trending and whether or not we can jump aboard that trend to take advantage
of its strength. To ignore the power and weight behind a trend and think that you will begin making money trading
WoW trades against the trend before you've learned to trade with the trend, is simply ignorant.

WHAT ESSENTIALLY HAPPENS WHEN A WOW TRADE OCCURS?

Watch this short video explaining WoW basics: https://vimeo.com/295602584/32ed4ef5f8

1. Price is over-extended on the bigger timeframes. Price starts to lose steam and act like a spring.
The more you pull from both ends, the bigger the snap back into place will be. Price tends to be
in equilibrium (balance), reversals and take profits occur at HTF imbalances (the footprint of
dinosaurs - professional traders and institutions), it is at this moment where waiting for a WoW
trade is high odds

2. More than 3 CP patterns will most likely have been formed. This goes hand in hand with price
over-extension. For instance, the lower the CP supply pattern is in the SD range (its altitude), the
lower its odds to hold price, the higher the odds to be removed once a HTF demand zone has
taken control

3. Big rallies and drops are not sustainable. At some moment, the market will revert to the mean
and traders/institutions will take profit. Where will this normally happen? At bigger timeframe
supply and demand zones

4. Price reacts to the bigger timeframe and creates a brand new imbalance

5. At the origin of these trendline breaks we'll probably see classic patterns like double and triple
tops and bottoms, 123, etc. We won't be trading these patterns, we will only be trading supply
and demand imbalances. By the time a double top is completed or the 123 neck line is tested, we
should have already been triggered short way higher after the TL break

6. Price needs to test 1 timeframe HIGHER than the one where the trendline break has occurred.
If we see a descending D1 TL solidly broken but no WK demand area, the WoW trade won't be a
valid setup

HIGH ODDS WoW TRADE SCENARIOS

Find below a list of scenarios where we will be looking for potential high odds WoW trades.

Scenarios ordered from higher to lower probability. The first 4 scenarios are the highest odds ones.

1. Momentum and location scenarios. WoW trades play out really well in momentum and location
scenarios, that is, with the bigger picture in a trend paired with the Sequence and
Realignment scenarios. For instance, MN and WK up, D1 loses momentum and retests a fresh WK
DZ --> Descending D1 TL is broken which provides a momentum and location D1 WoW
long. Watch this short video to learn more about Momentum and Location WoW trades
 2. A HTF zone is being tested,bigger picture is trending. WoW trades need support from a bigger
timeframe. For instance a D1 WoW long will be valid if at least a WK demand zone has gained
control. It will be even better if the WK and/or Monthly charts are trending (momentum and
location)

3. HTF Trendline confluence. There are no HTF zones to lean on but price starts to react at a MN or
WK TL. WoW trades can occur at TL confluences. Watch this short video to learn more about this
WoW setup

4. At HTF 20 EMA. High odds if there is bigger picture's trend. HTF 20 EMAs will only be used if the
TF we're analysing has got a clear trend. 20 EMAs work with trending markets, else they are
useless. Watch this video to learn more about this WOW setup. Read about this AUDUSD H4
WOW short, a clear example of using H4 WoW short as confirmation at a D1 20 EMA with a D1
downtrend and HTF SZ in control. Read a sub-lesson on HTF 20 EMA confluence lower, read it
here

5. HTF zone counter-trend. If the HTF is at a very extreme, it is high odds. Else it will be too
aggressive. For instance, MN and WK are up and we hit a MN SZ. The MN SZ is in the middle of
the charts not at an extreme and imbalance is not that great. That's not the best scenario to try
shorts

6. HTF has been overshot but no candle close. If a HTF imbalance is taken out, we should wait for
the opposing area to be taken out, a clear new imbalance with at least 2 ERC candles, ideally you
want to wait for a new D1 trend. I need to perform further tests on this scenario since there are
many times that it yields great results. This scenario is higher odds when the bigger picture is
trending

Most scenarios are covered in more detailed lower in sub-lessons.

LOWER ODDS WoW TRADE SCENARIOS

1. Lower TF WoW against bigger TF zone in control. For instance, taking D1 WoW longs against a
WK or HTF zone in control is not a good idea. The bigger TF normally wins over the lower TF. As a
rule of thumb, a big TF will win over a lower TF (not always but we're talking about odds here, we
must play high odds scenarios not the exceptions)

1. D1 WoW long against valid WK SZ --> WK normally wins over D1

2. D1 WoW long against opposing WK or MN TL and/or 20 EMA confluence (bigger picture

trend down)

3. D1 WoW long against valid WK SZ and WK downtrend. Maybe price is even bouncing
from MN DZ but we must respect the WK downtrend and WK SZ

4. The same applies if you swap the TFs by 1 level and /or change long for shorts, that is,
change D1 for H4 and WK for D1

2. At all time highs/lows. For better odds we should wait for an opposing zone to be taken out, not
just the TL break
 3. If entry TF has got a new opposing trend against the original WoW and opposing zone is in
control. If the WoW entry does not trigger soon we run the risk of having a new opposing HTF
trend against us and even a HTF opposing zone in control, when that happens, we need to wait
for further confirmation (new WoW). If we are holding an opposing trade against that WoW, hold
it since the WoW is lower odds. For example: Imagine you have a D1 WoW short as confirmation
of M SZ. Then before price retraces to D1 WoW there is an official D1 uptrend or even worst a W
uptrend, do you think that's high odds? No,it's not.

4. An opposing HTF takes control and WoW is nested within tested opposing zone. For instance,
price dropped from WK SZ, now WK SZ is considered tested. As it drops a D1 WoW short is created
but price keeps on dropping and tests a fresh WK DZ with a WK uptrend intact. When price rallies
into the D1 WoW short, we'll have a D1 WoW short with opposing fresh WK DZ in control and a
nested tested WK SZ. The whole confirmation process is needed again for a new short

The following attachment is a Coggle mind map created by Nathanael, it summarizes really well the WoW
trades odds.
THE BIGGER THE TIMEFRAME IN CONTROL, THE BIGGER THE TIMEFRAME WE SHOULD USE FOR A WOW SET-
UP

WoW set-ups are high odds if they are taken with the bigger picture trend and the bigger timeframes of your
sequence are aligned. If you choose to trade WoW set-ups without that condition, you are going to see many
fake-outs before price takes off of the level you are expecting.

The bigger the time frame in control we are using for our bigger picture, the bigger the time frame we should
use for WoW set up. With MN as your bigger picture, D1 WoW will have a greater probability than H4.

As a rule of thumb:

The bigger the TF in control, the bigger the WoW TF you should use for high odds. Imagine MN DZ in control

For instance:

• MN DZ is in control, taking a H4 or lower timeframe WoW long is not a good idea, opposing D1
and WK supply zones hold quite well for a first retest so taking lower TF WoW longs with quality
lower TF's SZ in control is not a good idea

• Price doesn't usually take off from MN DZ until there is a WK WoW long, in the meantime, shorts
can still happen on D1 and WK SZs, even with the MN chart in an uptrend

• If H4 WoW longs are used as confirmation, we have WK out of alignment, and D1 downtrend,
odds are H4 WoW longs won't have much success, you will experience lots of fakeouts and stop
losses hit

Guidelines on what would be the minimum TF to wait for a high odds setup

• MN DZ in control and in an UP trend--> D1 WoW long minimum. If there is a valid WK SZ above

MN SZ, it usually holds well on a first retest, price usually takes off the MN DZ until there is a WK
WoW long. We''ll see nested D1 and H4 WoW longs when that happens. Check out this WK WoW
long at MN DZ on GBP/NZD to see a live example of this scenario

• WK DZ in control and bigger picture in an UP trend--> D1 WoW long minimum. H4 WoW longs
can work but make sure there is no D1 SZ, HTF TL or HTF 20 EMA in control

• D1 DZ in control and bigger picture in an UP trend--> H4 WoW long minimum. Rationale from
previous two scenarios apply here as well
COUNTER-TREND WoW SET-UPS
WoW setups can occur under many scenarios, they are best when they go with the bigger picture's trend or
bouncing off of a strong HTF SD zone, as detailed in the high odds scenarios above.

WoW setups will also happen on counter-trend like any other pattern, however we need to know when a valid
WoW counter-trend can be taken.

There are a couple of rules:

• It must hit and be supported by a HTF opposing zone. A D1 WoW short counter-trend will require
as minimum a WK SZ taking control

• It must take out and opposing zone with a candle close, if price is bouncing off of a WK SZ and
our entry TF is the D1, we need D1 DZ taken out with at least a D1 candle close

• Ideally what we want to see is tested levels to the left, over-extension and/or compression, read
about it on the counter-trend lesson. This gives price a path of least resistance to play through,
unobstructed.

HOW TO DEAL WITH THE FRESHNESS OF A LEVEL IN A WOW TRADE

It is very difficult to cover all possible WoW scenarios, there is no perfect recipe for a WoW trade. Try to apply
common sense and logic here as well. Don't try to outsmart the markets, play your odds and look for the next
high probability trade. Deal with each scenario as if it was the only one, think in probabilities. If you want to
tweak some of the rules or scenarios, make sure you have have mastered the basic setups first.

Follow the guidelines below to deal with the freshness of a HTF level:

Fresh HTF zone in control and bigger picture trend? No need to take out opposing zone. See EURZAR example

• Most of the time, the opposing zone will be removed anyway, you can always wait for it to be
removed and deal with it as a higher probability entry

• If the opposing zone we want to see removed is not well formed (too wicky, too much trading,
compressed, etc), we can be a little bit more aggressive and "expect"(not assume) the zone to be
removed

• Recommendation: wait for the opposing zone and/or obstacles to be taken out, we want to see
last impulse/imbalance and/or obstacles out of the way (you will not have to think when to wait
or not for the opposing zone to be taken out), and there should be a lot of room to the next
opposing zone.
TESTED HTF IN CONTROL?
Wait for a brand new imbalance to be created, one that takes out an opposing zone. If there is no zone to be
removed and there is a lot of profit margin to the closest opposing zone, then there will be no need to remove
any zone, it's advisable that bigger timeframes are with you. For instance a H4 demand zone nested within a
D1 demand zone, nested within a WK demand zone with the WK chart in an uptrend.

UK100 INDEX Example.

Weekly and daily uptrend. D1 demand #2 is tested, a WoW long at H4 requires a new H4 demand that takes
opposing supply out because the D1 level is tested. H4 WoW long at #1 and #5 took out SZ #4 that took out H4
DZ #3. My broker's candlestick formations were slightly different to Trading View's example, trade would have
been triggered already, see post here

USED-UP HTF ZONE? Do nothing since they are not high odds, ideally we want to wait for at least a new trend
in our entry timeframe clearly removing opposing zones the direction we want to trade, not just a CP or WoW
trade, but a confirmed trend connecting two clear valleys/peaks

COUNTER-TREND WoW? We must wait for the opposing zone to be taken out. Watch HTF 20 EMA, make sure
price action to the left is ideal for counter-trend trading (compression, over-extension, tested levels, etc)
HOW TO PLAN A WoW TRADE
When price starts reacting to the bigger timeframe, it usually creates a brand new imbalance. We must be
aware that many times there is more than one imbalance created:

1. A valley/peak at the extreme, right where the whole imbalance was originally created at the
origin of the move

2. A CP (Continuation Pattern) or valley/peak right at the area where the Trendline is solidly broken
(breakout spot) or just after the TL break

If both setups are valid. Which one should you take? The CP? The extreme? Both?
Both entries will be valid, however we have the core strategy rules to help us make that decision, trendline
breaks and freshness of a level.

1. Take the extreme if no valid CP pattern or if another valley/peak is formed above, take that. We
might have no CP formed, only valleys/peaks, so we will trade what we see

2. Take the CP at or near the retest of the trendline break if the CP has been validated as per the
core strategy rules

3. Once the TL is solidly broken on our entry timeframe (let's say H4 entry TF trading a WoW trade
at a D1 fresh Demand), we will wait for a bigger pullback right at the extreme valley/peak that
originally created the new imbalance on H4 within the D1 zone. This is part of the core strategy

AT WHICH TIMEFRAME SHOULD I WAIT FOR THE IMBALANCE?

• If the HTF which is being tested is a D1 level, then we will wait for minimum H4 WoW trade

• If WK is being tested, then we wait for a brand new D1 zone to be formed. H4 is also ok if there is
compression and over-extension to the left

• It's all related to the TF you specified as your entry TF on your trading plan and under which
circumstances you might drill down the WoW trade to a smaller TF

NESTED WoW TRADES

There are scenarios where we'll see several nested WoW trades. A nested zone is a zone which is located within
a bigger timeframe than the one where we have located the first zone.

The more nested WoW trades we find in any given scenario, the higher the odds. That does not mean you
should tweak or break the rules of imbalance/departure, quality of the levels, non-fresh and/or used-up zones
however

An example of this could be this scenario:

• D1 WoW long nested within a WK WoW long at a Monthly demand zone

• The Monthly demand is fresh and WK is over-extended to the down side

• The descending WK TL is solidly broken and provides a WK demand zone at the extreme or at the
retest of the TL break
 • When a new WK demand is formed, the descending D1 TL will most likely be solidly broken and
might have provided us with an earlier entry of the sort of a D1 WoW long trade, nested within
the WK demand zone where we are originally waiting for price to drop before we go long

• Remember that at a HTF zone like the WK or Monthly, price will take longer to move,
accumulation and distribution stages need more time at these bigger TFs, and price will probably
range for some time. So if you move your SL to breakeven too soon you will miss the big move
and might get kicked out early.

You need to practice and forward test these scenarios on your favourite testing software for quite some
time before you gain confidence in the rules for the WoW trade.

1. Trade only D1 WoW at the beginning so you can get the feeling and confidence. H4 WoW trades
happen more often, buy taking D1 WoW trades is advisable in the beginning

2. Take any pair and start at any year, use the D1, WK and MN charts

3. Use the D1 as the TF where you will be looking for the TL break

4. Use the WK and MN SD zones as areas where price will most likely react, it will lose steam and
cause the D1 TL to be broken

5. Be aware of the TL breaks on WK and MN as well, they are even more powerful and those trades
will most likely become a longer term trade

In the beginning, if you decide to take WoW trades, it's advisable that you to concentrate on WoW trades
that go with the HTF trend. Trade the super clearest setups, don't take counter-trend ones or you will see
WoW trades everywhere. That is, a D1 TL Buy WoW trade that goes with the WK and MN uptrend, the D1 drop
would be realigning with the WK/MN uptrend, those are the ones to start with, and then with practice the
counter-trend ones and the other scenarios listed above.

The bigger the timeframe, the bigger the WoW TF entry you should look at for having high odds setups. For
instance, looking for a H4 WoW at a WK Demand area will probably generate some fakeouts, price normally
takes some days to take off from a WK or MN area so it will generate several entry areas normally. If you wait
for a D1 imbalance instead of a H4 or H1 you will probably have more success. That does not mean that H4
WoW trades won't work but look at the charts and observe the WoW trades on WK and MN areas of demand,
price hits them and a couple of WK or MN candles bouncing off it is the normal thing, that means days of
accumulation/distribution, providing several H4 longs. After 1-3 CPs on the D1 price will most likely take off.
By 3 CPs I don't mean over-extension, I mean a CP is created, then price retests it, it goes back again to the
origin of the imbalance, then rallies again and another CP with higher lows... after the 2nd or the 3rd price will
most likely take off.

WATCH NESTED WOW VIDEO