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A Wolfe wave is a reversal pattern and a very successful one at that. It is basically a 5 point structure, and like the other 5 point pattern – the harmonic pattern – It is precisely defined, very specific in structure and gives excellent Risk-to-Reward ratios.
We had a look at a Wolfe wave setup in a previous post – http://blogs.fxstreet.com/forexology/2009/03/15/wolfe-waves/
and am enclosing 2 Wolfe waves that we traded in our live trading room.
The rules remain the same – (for a bearish Wolfe wave)
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.
One can simply reverse the rules for a bullish pattern and as we can see, this pattern is quite accurate
Sunil.
on eur/usd 4hr chart - i see a bullish bat (target for D = 1.26)and a bearish butterfly forming (target for D = 1.30)within the bullish bat. do you see that too?
Hi Sunil,
I have read your articles before. You present some very interesting yet simple strategies for trading.
I am seeing a wolfe wave in 4hr chart of AUD/USD. What are your thoughts? Too bad I cannot post any charts
Look forward to your comments
Regards
Rajeev
hello sunilji,
i hope you can give a webinar about wolfe trading.