Learn to Trade Wammies and Moolahs in 13 Minutes [Bonus Cheat Sheet]

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What Are Wammies and Moolahs?

Wammies and Moolahs are reversal chart patterns. They were introduced by Walter Peters in his book, Naked Forex, as improved versions of the classic double top and double bottom patterns.

In case you don’t know, the double top occurs during uptrends when the price reaches a resistance zone but can’t break through and begins reversing instead. The double bottom is simply the mirror image of the double top.

Both patterns occur frequently across different markets and are easy to recognize, even for beginners.

They sometimes predict important market reversals. For example, this double bottom successfully foreshadowed the end of a major bear market in the GBP/USD.

More often than not, however, they end up giving false signals, similar to this one below:

So, what if you wanted to trade double tops and bottoms? Should you just straight-out avoid them?

Well, it’s very unlikely that you’d find something that doesn’t produce a handful of losing signals. It’s just how it goes with trading; nothing works amazingly.

If you like double tops and bottoms, stick with them. However, instead of taking every pattern that you see on the chart, a better way would be to trade patterns with optimal trade characteristics.

This is where Wammies and Moolahs enter the scene.

Wammies are enchained double bottoms and Moolahs are enhanced double tops. They have unique features that will allow you to trade double bottoms and double tops with the best odds.

These optimal trade characteristics are what most winning double tops and bottoms share. Concentrating your efforts on a few selected patterns that fit certain criteria will help you filter out subpar patterns, thus improving your win rate and profit margin.

Keep reading to learn what these features are.

How to Identify Wammies

First, let’s address the fact that support and resistance zones are critical components of Wammies and Moolahs. Indeed, we recommend that you read our guide if you have trouble understanding how they work.

The Wammie formation occurs at a support zone and involves two touches. The first thing to remember is that the second touch must be higher than the first touch.

This is important because uptrends are normally characterized by higher highs and higher lows.

When the second touch is higher than the first touch, you essentially witness a downtrend turning into an uptrend. This is exactly what you want when looking for reversal chart patterns.

The second thing to consider is that there must be at least six candlesticks between the two touches. This way, you avoid the typical sign of impending breakouts, i.e., when the price is touching a zone several times in rapid succession.

While it might be tempting to place a buy order at this point, the Wammie pattern has two more important features that will help you maximize your odds for a winning trade.

First, you must wait for a big bullish candlestick. This signals that the support level holds and the sentiment is turning bullish.

Second, the price must surpass the bullish candlestick. This shows that the price is experiencing a strengthening bullish momentum, and it might be ready to take off.

To summarize, here’s the step-by-step formation of the Wammie pattern:

The price makes a new low and bumps into a support zone.
The price rebounds from the zone and prints at least six candlesticks.
The price returns to the zone but stops higher than the first low.
A strong bullish candle appears.
The price closes above the bullish candle.

Now let’s see what’s the deal with Moolahs.

How to Identify Moolahs

The Moolah formation occurs at a resistance zone and involves two touches. In this case, the second touch must be lower than the first touch. This is because downtrends are normally characterized by lower highs and lower lows.

When the second touch is lower than the first touch, you essentially witness an uptrend that begins turning into a downtrend. Similar to the Wammie, you must see at least six candles between the two touches.

On top of that, there are two more attributes to consider before pulling the trigger.

First, you must wait for a bearish candlestick to occur. This signals that the resistance holds, and the sentiment is turning bearish.

Second, the price must fall below the bearish candlestick. This shows that the price experiences a strengthening bearish momentum, and it might be ready to fall even further.

To summarize, here’s the step-by-step formation of the Moolah pattern:

The price makes a new high and bumps into a resistance zone.
The price rebounds from the zone and prints at least six candlesticks.
The price returns to the zone but stops lower than the first high.
A strong bearish candle appears.
The price closes below the bearish candle.

This is how you identify Wammies and Moolahs. If you already haven’t, make sure to download our cheat sheet, as it includes the formation of both patterns with illustrations so that you can refer to it whenever you’re in doubt.

How to Trade Using Wammies and Moolahs

Wammies and Moolahs are usually traded on daily charts, but it’s possible to trade them on any other timeframe depending on what’s comfortable for you.

Basically, there are two ways to enter a Wammie or Mullah trade:

The conservative method is to place a pending order slightly beyond the trigger candle – which is the bullish candlestick in the case of the Wammie and the bearish candlestick in the case of the Moolah. The stop loss is placed a few pips beyond the first touch.

This way, your trade will be activated only if the market continues to move in your direction. This might reduce your profit a little, but it can strengthen the trade signal and spare you some losses.

The aggressive method would be to open the trade right after the trigger candle closes.

Everything is the same except that you use a market order instead of a pending order. Your risk-reward ratio, which is the ratio of your stop loss and profit target, will be a little better, but you miss out on an additional layer of confirmation.

Regarding profit targets, there are no hard rules. Rather, there are various techniques you can choose from.

One would be to place a take profit order at the nearest support or resistance zone. Going for a fixed ratio such as 3x risk or using some sort of a trailing stop are also popular techniques. You must find out what works best for you.

Tips and Tricks for Trading Wammies and Moolahs

Unfortunately, even Wammies and Moolahs can fail.

In this section, we’ll look at some tips and tricks for picking the best trades and increasing your chances of a winning trade.

Oh, and in case you were wondering, these are not the same tips that were included in the book.

Are you excited? Let’s get into it.

Don’t Compromise on Your Trade Setups

Wammies and Moolahs have enough components to make them relatively rare.

In other words, you might be eyeing a setup for a while, only to see that it doesn’t qualify as a Wammie or a Moolah.

For example, you might see a pattern with equal highs instead of the second high being lower. Or you might see a pattern that lacks a strong candle at the end.

It doesn’t matter what is missing; the temptation will be high to overlook it “just this once” and take the trade.

Needless to say, this approach sucks.

Successful trading is determined by your ability to stick to your system. Bending your rules even once can pave the way for further disobedience, especially if you happen to win the trade. This won’t benefit you in the long run.

Besides, there’s no reason to break the rules if you have a profitable system. You know that you already have an edge, so why would you risk losing it?

If you’re unsure whether your system is profitable, you shouldn’t be trading in the first place. Read our guide to backtesting and build your confidence in your system before risking money.

Stay Away from Patterns with Large Gaps Between Touches

If you read the Naked Forex book, you might remember that Walter suggests choosing setups with many candlesticks between touches.

In particular, he says that six candlesticks between touches is nice to see, but 20 candlesticks between touches is better.

This is solid advice, but we would add that you should stay away from patterns that have significantly more than 20 candles between touches.

Patterns like the above are not ideal because you run the risk that the market is only experiencing a prolonged consolidation and will eventually resume its previous trend.

Try to concentrate on patterns with about 6-20 candles between touches, as this appears to be the sweet spot for finding profitable setups.

Combine the Patterns with Fundamentals

Short-term movements are often unpredictable, but long-term trends are driven primarily by fundamentals. By combining fundamentals with chart patterns, you might be able to better anticipate upcoming price trends.

Just think about it:

Wammies and Moolahs are normally traded on the daily chart. You will probably look at the prices once or twice a day but there’s no way you’ll be sitting in front of the computer watching a daily candle form.

Because you don’t have to hurry with opening trades, you can easily take some time to update yourself on economic developments. You might even make your trading decisions based on fundamentals and use Wammies and Moolahs only to find optimal entries or exits.

A great example of this would be the EUR/USD exchange rate at the beginning of the corona pandemic.

The European Union was quick to establish a coordinated response by barring most travelers from outside the block on March 17, 2020. On the other hand, the United States was struggling to contain the virus and, by the end of March, has become the hardest-hit country by the pandemic.

If you believed that Europe was in a stronger position to recover from the Covid-19 shock as compared to the US, you could have decided to go long on the EUR/USD despite the bearish market at the time.

Waiting for a Moolah signal would have put you in the market somewhere at the beginning of April and you could have made a lot of money by sticking to your position throughout the upcoming months.

This is just a simple example of how you can benefit from combining fundamentals with Wammies and Moolahs.

Conclusion

Naked trading is popular because it works.

Wammies and Moolahs are a perfect opportunity to work on your understanding of price action, and they can greatly improve your results if you trade them as part of a sound trading plan.

Remember: Don’t get carried away. Make sure you manage your risk appropriately. Even the best setups can fail, so you have to be careful.

We encourage you to read the Naked Forex book from Walter Peters. It contains more amazing trading methods you will find useful even if you don’t want to completely eliminate indicators from your trading.

Furthermore, you can check out our guide on kangaroo tails, which is another popular naked trading technique.