Let us have a look at a different pattern, other than the regular harmonic patterns that we follow.
This is a pattern which we trade quite successfully in our trading room and like the harmonic pattern; it is precisely defined, very specific in structure and gives excellent Risk-to-Reward ratios.
The Wolfe wave is a reversal pattern, which forms a 5 point wave structure. It has a very simple 3 step identification process and one can trade within the legs of this pattern…often quite accurately.
I am enclosing an ideal bearish Wolfe wave on the Cad/Jpy.
As we can see, it is very specific in terms of Fibonacci ratios.
1.) Once the points 1, 2 & 3 have been identified, we wait for the point 4 of the pattern to confirm to the conditions.
2.) Once point 4 forms, we can expect price to rally up for a last thrust to point 5, which usually forms at the Fib projection 127.2 / 161.8 (of 3-4)
Thus one can trade this up move with confidence as the price objectives are precisely set.
3.) Once price finds resistance at this fib level, thus completing the last leg of the pattern, we can expect price to change trend to the downside with great momentum.
For the price objective of this down move, we plot a line from the high of point 1 to the low of point 4.
Price will often come down to meet this line which becomes a very precise target.
Sunil.
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