Wolfe wave trading

Wolfe waves: quick introduction

Wolf waves belong to swing trading methods. It was developed by Bill Wolfe, who has made living trading S&P.

The general idea is based around finding channeling markets that are showing an imbalance and by counting waves and drawing trend lines spot perfect entries and project accurate profit targets.

Wolf wave pattern consists of 5 waves, which form a channel or an ascending/descending wedge in advancing/declining markets.

Wolf wave bearish and bullish patterns

How to count Wolfe waves – bullish setup

Wolfe wave is a reversal pattern, therefore it is important to know exactly how and where to look for it, otherwise a trader risks being on the wrong side and trading against the trend that isn’t over yet.

- point 2 is a top.
- point 1 is the bottom prior to point 2.
- point 3 is the bottom after point 2, point 3 must be lower than point 1.

- point 4 is the top of the rally after point 3. Point 4 must be higher than point 1.
- at this stage a trend line is drawn connecting point 1 and 3. An extension of this trend line will project the reversal which will come at point 5.

- Point 5 will most likely exceed the trend line drawn from 1 to 3. Point 5 is the entry point with a target at EPA (Estimated Price at Arrival) line.

- EPA line (the green line on the illustration) drawn from point 1 to 4 and is extended into the future.  

Wolfe wave trading examples

Below are the 1H USDJPY chart with 2 Wolfe wave setups:

A clear simplified chart with already identified waves and lines.

A chart with Wolfe wave count as well as entry & profit targets.

Stops with Wolfe waves

The Stop is placed behind point 5.

If to draw a line from point 2 to point 4, then once price reaches that line, we can move the stop loss to break even level.

Wolfe wave trading requires training your eyes to spot setups. It may take awhile, but afterward it becomes easy to stop Wolfe wave patterns across all time frames: from 1 min charts to monthly charts.

 Wolfe wave MT4 indicators

WolfeWave_1.ex4
WolfeWave_2.ex4
WolfeWave_3.mq4
0_WolfeWave_04m.ex4

As practice shows, all these Wolfe wave indicators aren't perfect, but can certainly be of some help, while manual trading remains the best option still.