What Does Wolfe Wave Mean?… Wolfe Wave Trend Forex Trading System. In technical analysis, it is a naturally occurring trading pattern present in all financial markets.
The pattern is composed of five waves showing supply and demand and a fight towards an equilibrium price. These patterns can develop over short- and longterm time frames such as minutes or weeks and are used to predict where a price is heading and when it will get there.
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.
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.
If identified correctly, Wolfe waves can be used to accurately predict the scope (equilibrium price) of the underlying security. To identify Wolfe waves, they must have the following characteristics:
- Waves 3-4 must stay within the channel created by 1-2
- Wave 1-2 equals waves 3-4 (shows symmetry)
- Wave 4 is within the channel created by waves 1-2
- There is regular time between all waves
- Wave 5 exceeds trendline created by waves 1 and 3 and is the entry point
- The estimated price is a price along the trendline created by waves 1 and 4 (point 6).