Latest posts

    Ethereum – Secret bear flag! (70% crash target)

    March 31, 2023

    Bitcoin is retesting a trendline from 2013! (right now)

    March 29, 2023

    Bitcoin – No one talks about this trendline, last wave up!

    March 27, 2023
    Telegram RSS
    • My TradingView
    • Best way to trade futures
    • Best way to trade spot
    • The holy grail of trading
    • The game changer
    Telegram RSS
    Tolberti
    • Home
    • Education
      1. Motivation & Strategy
      2. Technical Basics
      3. Candlesticks
      4. Chart patterns
      5. Indicators
      6. FIbonacci
      7. Elliott wave
      8. Harmonic patterns
      9. View All

      What is drawdown in Trading

      December 2, 2022

      Trading Psychology and its Importance – Tips For a Winning Mindset

      November 2, 2022

      As a trader you need to stay disciplined!

      November 2, 2022

      How to Create a Successful Trading Plan – Step-By-Step Guide

      November 2, 2022

      Price action trading strategies that you need to know

      November 2, 2022

      Support and Resistance – A basic concept of technical analysis

      November 2, 2022

      Technical analysis explained – What is it and how does it work?

      November 2, 2022

      The most common mistakes technical analysts make

      November 2, 2022

      Candlestick Patterns – Complete Guide to Bearish and Bullish Candlesticks

      November 2, 2022

      Rising three methods

      August 11, 2022

      Falling three methods

      August 11, 2022

      Spinning top

      August 11, 2022

      Rising & Falling Wedge

      January 20, 2023

      Bullish Pennant

      January 20, 2023

      Bull Flag

      January 20, 2023

      Head and Shoulders

      January 20, 2023

      OBV – On-Balance Volume

      December 2, 2022

      Market Profile – A Complete Guide

      November 2, 2022

      Ichimoku cloud

      August 18, 2022

      Moving average (MA)

      August 18, 2022

      Fibonacci and Market Analysis

      August 13, 2022

      4 mistakes that Traders should avoid while Trading with Fibonacci

      August 13, 2022

      Why Fibonacci Series is important for Technical Analysis

      August 13, 2022

      A complete overview on trend and theory of retracement

      August 13, 2022

      Elliott Wave Cheat Sheet: All You Need

      August 14, 2022

      Elliott Wave Theory: Complex guide

      August 14, 2022

      Elliott Wave: All About How To Count

      August 14, 2022

      Leading And Ending Diagonal: How To Trade Them

      August 14, 2022

      Alternate bat pattern

      October 1, 2022

      The List of All Known Harmonic Patterns & Ratios

      October 1, 2022

      Cypher pattern

      September 1, 2022

      ABCD pattern

      August 13, 2022

      Rising & Falling Wedge

      January 20, 2023

      Bullish Pennant

      January 20, 2023

      Bull Flag

      January 20, 2023

      Head and Shoulders

      January 20, 2023
    • Technical analysis

      Ethereum – Secret bear flag! (70% crash target)

      March 31, 2023

      Bitcoin is retesting a trendline from 2013! (right now)

      March 29, 2023

      Bitcoin – No one talks about this trendline, last wave up!

      March 27, 2023

      Shiba Inu – 23% crash, best opportunity! (long-term outlook)

      March 25, 2023

      Bitcoin – The bottom is not in! 15k or 10k (careful)

      March 23, 2023
    • Info
      • Crypto news
      • Crypto converter
      • Crypto exchanges
      • My TradingView
      • Best way to trade futures
      • Best way to trade spot
    • Contact
    • My books
    • Join premium channel
    Tolberti
    Home»Education»Harmonic patterns»Wolfe waves pattern
    Harmonic patterns

    Wolfe waves pattern

    By TolbertiAugust 13, 2022No Comments
    Facebook Twitter Telegram WhatsApp Reddit Pinterest Email
    Share
    Facebook Twitter Telegram WhatsApp Reddit Pinterest Email

    The Wolfe wave chart pattern is a powerful formation that is often seen near terminal points of a price trend. As such, it is considered a countertrend trade set up. The Wolfe wave pattern has been shown to be a reliable set up that technicians should study and be aware of. This article will highlight the most important aspects of the Wolfe wave pattern and some of the best practices for applying in the market.

    Understanding Wolfe Waves

    A Wolfe wave is a unique pattern that appears in the price series. A Wolfe wave consists of five waves within the context of a bullish or bearish market trend and which has a very symmetrical shape. The pattern is most often found within an uptrending or downtrending channel formation.

    Although the pattern does appear within a range bound market scenario, the best Wolfe wave patterns will display some level of trending behavior within the price action. Technical traders can use the pattern to help time their entries more effectively. There are some very specific Wolfe wave rules that must be met in order for a proper classification of the structure.

    The concept of Wolfe waves was studied by Bill Wolfe who discovered and presented the pattern to the technical analysis trading community. Wolfe wave patterns occur across all time frames within freely traded liquid financial markets.

    As such, Wolfe wave patterns are considered to be fractal in nature and can be seen on very small timescale such as the one minute or five minute charts up to the much larger timescale such as the weekly or monthly charts.

    When a trader can correctly label a Wolfe wave pattern, they will be able to execute a buy or sell set up at a high probability reversal point and arrive at a precise target point for the trade as well. As such, Wolfe wave formations can be an excellent addition to any technicians trading arsenal. Let’s now take a closer look at what the Wolfe wave pattern appears like.

    In the image above the bullish Wolfe wave pattern is shown on the left side of the image, while the bearish Wolfe wave pattern is displayed to the right. The bullish Wolfe wave pattern generates a buy signal near the terminal point of wave five, after the 1-3 trend line has been breached to the downside. Afterwards, price is expected to move higher and find resistance near the 1-4 trendline.

    The bearish Wolfe wave pattern generates a sell signal near the terminal point of wave five, after the 1-3 trend line has been breached to the upside. Subsequently, price is expected to move lower and find support near the 1-4 trendline.

    Bullish Wolfe Wave Pattern

    Wolfe waves will generally form within parallel channels or equidistant channels. That is to say that the Wolfe wave pattern will be seen as forming within two trendlines that are relatively parallel to each other. Within the context of a Bearish Wolfe wave pattern, there will be five price legs of relatively equivalent length, and which appear to display symmetry.

    In the illustration below you can see an example of the bullish Wolfe wave pattern.

    The bullish Wolfe wave structure begins at leg one which moves lower. At some point wave one will create a swing low, and prices will begin to move higher in wave two. After wave two completes, wave three will begin to move lower and terminate below the start of wave one, followed by wave 4 which will move higher and create a swing high below wave 2.

    At this point we will want to plot a trend line that connects the end of wave one and end of wave three forming the 1-3 trend line. At the same time, we will draw a trendline connecting the end of wave two with the end of wave four creating the 2-4 trendline. Again, we want to see that the 1-3 trendline and the 2-4 trendline are relatively parallel. Finally, wave five should move lower beyond the swing low of wave three and breach the lower part of the 1-3 trendline.

    The buy entry signal will occur upon price rejecting that area outside the 1-3 trendline as prices move back into the channel once again. Upon price successfully moving back into the channel, we can confidently label the structure as a valid bullish Wolfe wave pattern.

    The bullish Wolfe wave pattern is a contrarian trading set up, wherein we want to trade counter to the prevailing down trending market environment in expectation of an upside reversal. The bullish Wolfe wave structure provides a target point which is calculated using the 1-4 trendline. As prices approach this level, we would expect to find resistance, thus providing a good opportunity to exit our long position.

    Bearish Wolfe Wave Pattern

    As with the bullish Wolfe wave variation, the Bearish Wolfe wave pattern will also occur within a parallel channel, where the up sloping 1-3 trendline will be at a relatively similar angle to the up sloping 2-4 trendline. The Bearish Wolfe wave pattern also consists of five price for legs that are relatively similar in length and display some level of symmetry.

    Let’s now dive into the details of the Bearish Wolfe wave structure. Below you can see an illustration of the Bearish Wolfe wave pattern once again.

    The Bearish Wolfe wave pattern starts at leg one which moves higher. After which leg two begins and moves lower reaching a swing low above the start of leg one. Then leg three will form that will move higher and terminate above the end of leg one. This is followed by leg four which moves counter to leg three and terminates above the swing low of leg two.

    At this point, a trendline should be drawn connecting the end of wave one and end of wave three. And another trendline should be drawn connecting the end of wave two and end of wave four. These two trendlines should appear to be relatively parallel to one another. The final leg, wave five should extend just beyond the upper trendline, specifically the 1-3 trendline. This is often seen as a false breakout or throw over.

    The actual sell entry signal occurs when the price moves back into the channel after this upper trendline penetration. This price rejection back into the channel confirms the Wolfe wave pattern. As you may have noticed, the Bearish Wolfe wave pattern is a countertrend trade set up that seeks to fade an up trending market condition at a high probability turning point. Upon entry into the Bearish Wolfe wave set up, the target can also be calculated. To calculate the anticipated price move, you would draw a trendline connecting the end of wave 1 and the end of wave 4 and project forward. When the price action nears this 1-4 trendline, we can expect the price to find support once again.

    Wolfe Wave Trading Strategy

    Let’s now build a full trading strategy using the Wolfe wave pattern set up. This will be a pure price action based strategy, meaning that we will not make use of any other technical indicators or oscillators, but rather focus purely on the price structure that creates the Wolfe wave formation.

    So below are the rules for entering into a long trade set up.

    • We want to ensure that the price is trending lower.
    • Once we recognize a potential bullish Wolfe wave pattern, we will label each leg within the pattern.
    • A line should be drawn connecting waves one and three and another line should be drawn connecting waves two and four. These two lines should create a relatively parallel price channel.
    • Wave five should move beyond the 1-3 trendline, but quickly reverse and move back into the parallel price channel.
    • The buy entry order will be signaled upon a bullish price close back within the price channel.
    • The stop loss will be placed just below the wave five swing low.
    • A trendline will be drawn connecting wave 1 and wave 4 and projected forward. This will serve as a target level, and upon price touching this level in the future, the trade will be closed out.

    And here are the rules for entering into a short trade set up.

    • We want to ensure that the price is trending higher.
    • Once we recognize a potential bearish Wolfe wave pattern, we will label each leg within the pattern.
    • A line should be drawn connecting waves one and three and another line should be drawn connecting waves two and four. These two lines should create a relatively parallel price channel.
    • Wave five should move beyond the 1-3 trendline, but quickly reverse and move back into the parallel price channel.
    • The sell entry order will be signaled upon a bearish price close back within the price channel.
    • The stop loss will be placed just above the wave five swing high.
    • A trendline will be drawn connecting wave one and wave 4 and projected forward. This will serve as a target level, and upon price touching this level in the future, the trade will be closed out.

    Bullish Wolfe Wave Strategy Example

    Let’s now refer to a price chart to illustrate the Wolfe wave trading system outlined in the previous section. On the price chart below, you will see a Wolfe wave formation in the Forex market. Specifically, this example illustrates a bullish Wolfe wave set up in the US Dollar to Canadian Dollar currency pair using the 240 minute timeframe.

    Let’s begin dissecting this potential bullish Wolfe wave pattern and see how we would go about trading it based on our specified rules. First and foremost, we want to make sure that the price for the USDCAD is trending lower. This is obviously the case as we take a glance at the price chart. As the bearish trend progresses, we would have recognized at some point that a potential bullish Wolfe wave pattern may be emerging.

    We would label each of the legs within the structure starting with wave one. As we moved into the early parts of wave five, we would’ve been able to draw two trendlines. The first would be the 1-3 trend line connecting the swing lows at wave one and wave three.

    Additionally, we would draw the second trendline connecting the swing highs at wave two and wave four. Once we’ve done this, we can refer back to the two trendlines and confirm that they are relatively parallel.

    During the latter part of wave five, we can see that the prices breached the 1-3 trendline but was quickly rejected as prices moved back higher into the price channel. Note the first green bar that closes within the price channel. This would have been our signal to go long the USDCAD currency pair.

    Once the buy order was executed and we were positioned to the long side, we would immediately place a stop loss order to protect ourselves from any adverse price movements. The stoploss would be placed just below the swing low of wave five as can be seen by the orange line noted as, Stop.

    From here we will want to mark the potential exit point for this trade. Remember to do this, we would plot a trendline connecting waves one and four and project that line forward. This is illustrated using the dark redline within the price chart.

    Notice how prices move into this target area penetrating ever so slightly to the upside before finding resistance and drawing prices lower. Luckily for us we would have exited the trade at an optimal time with a healthy profit.

    Bearish Wolfe Wave Strategy Example

    Now let’s look at a second example of the Wolfe wave pattern strategy. This time will be highlighting a bearish Wolfe wave structure. Below you’ll find the chart for the US Dollar to Japanese Yen currency pair shown on the 240 minute timeframe.

    Starting from the far left of the price chart we can see that the price action was moving higher thus fulfilling the initial component for the bearish Wolfe wave strategy. As prices progressed higher, we can see a sort of stairstep price movement which comprises waves 1 to 5.

    More specifically we can see that waves one and three are rising in the direction of the overall trend, and waves two and four move counter to the trend, retracing a portion of waves one and three respectively. As prices moved higher in the initial stages of wave five, we would’ve been able to recognize a potential bearish Wolfe set up progressing.

    We’ll go ahead and plot a trendline that connects the swing lows of waves two and four creating the lower portion of the parallel channel. Additionally, we will plot a trendline that connects the swing highs at wave one and three creating the upper portion of the parallel trendline.

    At this point we would wait to see if the price action in wave five extends beyond the 1-3 trendline providing us a potential shorting opportunity. As we can see, wave five did in fact extend beyond the 1-3 trendline and began to consolidate in that area. But soon after, prices were rejected to the downside, providing us confirmation of the bearish Wolfe wave formation.

    A market order to sell the USDJPY currency pair would’ve been placed at the first down close into the parallel price channel. You can note where this occurs by referencing the blue arrow noted as, Sell. Once our sell short order has been initiated in the market, we can turn our attention to the stoploss.

    As per our rules, we will place a stop loss just above the swing high of wave five. The trade exit would be projected using the 1-4 trendline. We would connect the swing high at wave one with the swing low at wave four and project a trendline forward. Notice how prices moved into that target area before reversing back to the upside.

    Summary

    The Wolfe wave structure is a lesser-known chart pattern; however, it is a powerful pattern when applied correctly. The Wolfe wave pattern occurs across many different markets including the stock market, the futures market, and the forex market. The pattern can also be seen across many different time frequencies.

    Having said that the best most reliable Wolfe wave patterns to trade are those that occur on the four hour charts and above. This is where technical chartists should focus their energies when scanning for high probability Wolfe wave patterns. Traders can look for these patterns manually on the price chart or find a Wolfe wave indicator for this purpose.

    One thing worth mentioning is that this pattern is often confused with the Elliott wave impulse structure. Although there are similarities between the Wolfe wave structure, and the Elliott wave impulse structure, there are some very clear differences. Although it is beyond the scope of this article to compare and contrast the differences between the Wolfe wave structure and the Elliott wave impulse structure, it’s something that serious chartists should research further on their own.

     

    Share. Facebook Twitter Telegram WhatsApp Reddit Pinterest Email
    Previous ArticleRising three methods
    Next Article Three drives pattern
    Tolberti
    • Website

    Professional trader and analyst. My specialization is in Elliott Wave Theory, Fibonacci tools, chart patterns, candlesticks, and price action. To analyze market structure, I use market profile and volume profile in my trading system. To analyze trends, I use trendlines, VWAP, and simple moving averages.

    Join premium channel
    Join Premium
    Random education
    Motivation & Strategy

    Trading Psychology and its Importance – Tips For a Winning Mindset

    TolbertiBy TolbertiNovember 2, 20220

    Trading psychology is just as important to an investor as their knowledge and ability to…

    Harmonic patterns

    Three drives pattern

    TolbertiBy TolbertiAugust 13, 20220

    The three drive chart pattern is a formation of three consecutive symmetrical price movements. It is…

    Indicators

    Parabolic SAR

    TolbertiBy TolbertiAugust 18, 20220

    The Parabolic Sar (stop and reverse indicator) by J. Welles Wilder, is a trading indicator…

    FIbonacci

    Fibonacci retracement

    TolbertiBy TolbertiAugust 13, 20220

    When the price moves in the direction of the trend, it’s called impulses and the move…

    Technical Basics

    Support and Resistance – A basic concept of technical analysis

    TolbertiBy TolbertiNovember 2, 20220

    When it comes to technical analysis, there is a temptation to ignore the basics. Many…

    Random analysis
    Technical analysis

    DOGE – Extremely bearish pattern, buy/long here!

    TolbertiBy TolbertiDecember 17, 20220

    Doge looks very bearish , but this coin is definitely stronger than others. In this analysis, I…

    Technical analysis

    Bitcoin is retesting a trendline from 2013! (right now)

    TolbertiBy TolbertiMarch 29, 20230

    This trendline is 10 years old, and Bitcoin is currently retesting it from the opposite direction. If…

    Technical analysis

    Bitcoin – No one is expecting this! (react fast)

    TolbertiBy TolbertiMarch 2, 20230

    The new monthly candle is closed as a DOJI . This is one of the most powerful…

    Technical analysis

    Solana – Exponential growth, right now!

    TolbertiBy TolbertiJanuary 2, 20230

    Solana looks extremely strong at this moment, and it looks like we will have an…

    Technical analysis

    Bitcoin – The bears will crash BTC again! (Great opportunity)

    TolbertiBy TolbertiNovember 28, 20220

    From November 21 to November 24, we had a pretty nice uptrend. It lasted only…

    Free technical analysis and education from a professional trader. Go to the "education" section and start learning immediately.

    💡Join my premium channel on Telegram (my trades, signals) - get access.

    ✅ 1 month: 49 USD
    ✅ 4 months: 99 USD
    ✅ 12 months: 149 USD
    ✅ Life Time: 249 USD

    Latest posts

    Ethereum – Secret bear flag! (70% crash target)

    March 31, 2023

    Bitcoin is retesting a trendline from 2013! (right now)

    March 29, 2023

    Bitcoin – No one talks about this trendline, last wave up!

    March 27, 2023
    Get Informed

    Subscribe to Updates

    Get the latest news about crypto, technical analysis and trading.

    Telegram RSS
    • Home
    • Education
    • Technical analysis
    • Info
    • Contact
    • Terms of use
    • My book
    • Join premium channel
    © 2023 Tolberti.com. All rights reserved.

    Type above and press Enter to search. Press Esc to cancel.

    This website uses cookies to give you the most relevant experience.
    Cookie SettingsAccept
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
    CookieDurationDescription
    cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
    cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
    cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
    cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
    cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
    viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
    Functional
    Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
    Performance
    Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
    Analytics
    Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
    Advertisement
    Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
    Others
    Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
    SAVE & ACCEPT