Introduction to the Five Pattern Indicator
“M” and “W” Wave Patterns are price patterns identified by A. Merrill, which may predict how and where price would move next. These patterns are typically five-pointed patterns which are based on the swing highs and swing lows. The Five Pattern Indicator is a trading tool which is based on the “M” and “W” Wave Patterns.
What is the Five Pattern Indicator?
The Five Pattern Indicator is a custom technical indicator which provides pattern-based trade setups based on the “M” and “W” wave patterns.
This indicator plots lines connecting swing highs and swing lows to help traders identify the last pattern formed on the price chart. It also labels the swing highs and swing lows with a number to show where the market currently is at relative to the key points on the pattern. It then plots a dashed line to show the projections where price may possibly move towards if price action would form another pattern.
It also plots horizontal lines based on the identified price swings of the market. These horizontal lines can also be used as support and resistance lines where traders can anticipate potential reversals.
How the Five Pattern Indicator Works?
The Five Pattern Indicator has an algorithm which identifies price swings similar to that of the Zigzag Indicator. The indicator then measures the distance between each price swing and compares the price swings with the previous price swings. Based on the measurements, the indicator will then qualify the patterns if it fits any of its predetermined “M” or “W” patterns. If so, the indicator will label the swing points and name the current pattern as displayed on the upper left corner. It would also name the two possible patterns and plot the potential price point where price may swing towards based on the next possible pattern.
Below are the various M patterns that the indicator may identify.
The chart below shows an example of an M6 pattern identified by the indicator.
The indicator also uses the swing highs and swing lows as a basis for plotting the horizontal lines, which are also effectively support and resistance levels.
How to use the Five Pattern Indicator for MT5
The Five Pattern Indicator has several options within its indicator settings. However, these options are labeled in foreign characters.
The first three variables allow users to modify the indicator’s sensitivity when detecting the swing highs and swing lows, which includes the Depth, Deviation, and Backstep, which are similar to the settings on a Zigzag Indicator.
The fourth variable refers to the number of bars from the historical price data that the indicator would check for possible swing highs and swing lows.
The other variables and options allow users to toggle the “M” and “W” patterns on or off, change the color of the lines being plotted, as well as the line style.
Conclusion
The Five Pattern Indicator is an excellent technical indicator because it provides traders a trade setup based on the potential price points where price may touch using the “M” and “W” patterns. This allows traders to be proactive in anticipating potential trades rather than reactive to whatever the market does. Traders should still test and practice using this indicator prior to implementing it in a live trading account.
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