Wolfe

[waveslider 10]

Is anyone familiar with the wolfe wave?

 

The YM and NQ are showing pretty classic examples.

 

Here is a daily chart of YM, the up-trending blue line is the target line.

 

This is a high probability pattern in a ranging market, which YM certainly is in after the expanding pattern over the past 2 months.

 

If you are not familiar with the wolfe wave, google it - it is an effective pattern that happens frequently.

 

Any comments?

[BlowFish 10]

So target is the upsloping line P1-P4? (or does Wolfe label pivots from zero or with letters, all these different conventions!)

 

Cheers

[Dogpile 10]

nice, compare this chart to the bottom of pg 123 of Street Smarts book... they are basically identical. buy the reversal with a stop under this low is the trading strategy associated with it.

[waveslider 10]

Yeah it's a 12345 with the target line connecting 1 and 4. I think Rasche called it 3 indians, but bill wolfe coined the pattern originally. His site might be the best place to investigate it.

Understanding how this pattern works, the dynamics behind it, can spark some really interesting insights on how markets work.

This is a killer trade when it sets up.

[torero 10]

I still don't get it, the pivot 3-4 from the chart must be in the channel. There is no channel unless 2 lows and 2 highs are made. So 1 & 3 must exist to draw a line, so does 2 & 4. I got this rule from investopedia but does't make sense. I think this pattern is classified are broadening pattern in the classical TA.

[waveslider 10]

Torero, google "wolfe wave" to learn the pattern. Technically I would call it a descending wedge.

 

Point 2 is the recent high. Point five is the bar from friday, which penetrated the 1-3 line.

 

The target line is 1-4. Sorry, I should have labeled this chart better.

[waveslider 10]

When you start looking for these, they appear all over. ER2 just completed one, check it out....

 

Line 1-4 is the target line

[waveslider 10]

PS that was a weekly chart

[torero 10]

When you start looking for these, they appear all over. ER2 just completed one, check it out....

 

Line 1-4 is the target line

 

Ok, I see it. In classical TS, this is a rising wedge which usually means a quick bearish drop is imminent (if you draw the line from point 2 through point 4 along with 1 through 3, you'll see the wedge). This wedge has a target of going back to point 2. This is all in Edwards and Magee's book, very well explained.

[waveslider 10]

Torero, you are correct about the rising wedge. Wolfe goes deeper than the wedge though. What happens is that the rising wedge is rejected and the market creates a target for itself when the geometry gets skewed.

 

I am not the best instructor, but there is info out there on this pattern. If you are a visually oriented trader, this is a very valuable pattern to know.

Guarantee you the professionals see this, it is a contrarian pattern so creates a quick and powerful move.

 

The trick is to be able to see it developing as it happens.

 

Here is another guy who sees it and understands. Bill Wolfe doesn't use fibs, and I don't think you need to either.

http://blog.fxinstructor.com/august-1-2007-ny-live-trading-room-summary/

 

Go to Bill Wolfe's site to learn the pattern, if you google you will find it.

 

If YM holds this morning's lows (and the 1-3 line), then this pattern is set to run. The target is a good 800 points higher. Closing above today's open would be a good first confirmation, above Friday's high would be another.

 

The weekly ER2 chart I posted shows the power of this pattern as it is completed! Target hit perfectly. In consolidation patterns you start seeing these all over the place...

[bronxterp 10]

Ok, I see it. In classical TS, this is a rising wedge which usually means a quick bearish drop is imminent (if you draw the line from point 2 through point 4 along with 1 through 3, you'll see the wedge). This wedge has a target of going back to point 2. This is all in Edwards and Magee's book, very well explained.

 

 

And if you want to sprinkle in some Elliott Wave into this...

 

the rising wedge will only appear at the end of the 5th wave. If you're in the 5th wave and you start seeing overlapping subwaves, this is where doing the Wolfe projections can really pay off. These subwaves will only be 3 wave patterns...thus all the overlapping. Like you said, the drop that occurs after a rising wedge can be very sharp and quick.

[torero 10]

That's great! Now we have 3 theories that confirm this pattern, that means it's bound to have high probability of working!

[waveslider 10]

It really only works in a consolidation phase of the market. I believe point one is supposed to be the first pivot in the range, then point 2 is an attempt at a new high/low, which would fail (confirming range), then point 3 is a low below point 1 which also fails....

 

Basically it is a pattern whipsawing a lot of people, the more the better.

 

When there is momentum in a market, like there is here, the range is broken and price inverts into a larger wave rather than staying in a range.

[waveslider 10]

Here's another one that just played out on YM. Point 1 took place at 8:05 PST. The fake-out and entry was at 10:16 PST.

Approx. 30pt return.

[waveslider 10]

Here's another one that I was watching in the RUT. Pretty shallow but effective.

 

There are some important rules for this trade, but if they are satisfied the % profitable is very good. Best used in a non trending market.

 

#5 was the fakeout/failure

 

Connecting a line between #1 and #4 gave the target

[BlowFish 10]

If my understanding is correct point 5 can be outside the 1-3 line (even preferable). If that is the case do you wait for some trigger (reversal bar or something) to confirm point 5 and enter?

 

Cheers.

[waveslider 10]

Here's one I just took in ES. This is a 3 min chart.

 

The one point was a little tricky to notice. The important thing to note is that the 1 pt. occurred in congestion. It was actually an inverse point, the momentum that broke out of the contracting pattern started wave 1.

 

The target line was drawn between pts. 1 and 4. The trigger line was drawn using pts. 1 and 3. Entry was near pt. 5. If you just took a breakout it was worth 2 pts.

 

I took this trade because of a variety of factors; Lack of intraday trend, ER2 under-performance indicated that an uptrend was unlikely, range would continue. If you look at the volume on the bars I circled, you can tell the story and see where people got psyched out.

 

Probably would have been good to watch the TICK or TIKI to look for extremes.

 

Again, you had to have a trained eye to catch that pt. #1. Looking at balance and wave dynamics helps.

[BlowFish 10]

I think I have had a mini :lightbulb: moment. (Where's the bulb emoticon when you need it). Just kind of ties in with a couple of things that I had observed for myself and had even started to trade. I love market geometry its just so cool (when it works). Wouldn't mind seeing the odd failure too, lots to be leant from them.

 

Cheers.

 

EDIT: Yes the 1 point is kind of tricky

[BlowFish 10]

Just for fun I drew a couple of lines from what to my eye where more obvious potential one points. (bear in mind I am a chanell man at heart) Both 'work' but give an overshoot on 5. Am I right in thinking overshooting 5 is allowable and actually quite desirable?

 

Any comments on the other potential 1's?

 

Cheers.

[BlowFish 10]

oops file got left off

[waveslider 10]

Ah ha! you have a pretty good grasp on market geometry! What you have identified is a balance point that those lines are shooting through.

Your point #1 is equally valid, I was being conservative with my point#1. In essence, my point#1 gave the first target, the other 2 you had were the next targets.

Personal preference note:

My 1-3 line was downward sloping for a bullish target. I like these wedge failures.

 

Do you use Andrew's lines, Blowfish?

 

Also - there's a great book on channelling by a guy named M. Parsons called Channel-Surfing. A cheesy cover but very good book.

[vae victis 10]

hey guys,

 

I am new to this posting thing so please bear with me if I don't get it quite right the first time (trying to become a reformed 'lurker').

 

I am very intrigued by Wolfe Waves, and been trying to learn about them for the past few days. I would like to post a 4 minute chart on todays YM. The 4 minute TF is new for me (usually use 1 & 2 min), but wanted to try something new - swings instead of scalps maybe. I drew this WW in real time on the 1120 (central) bar. As indicated on the chart, 13840 looked like a good entry so I entered a limit order at that level. Based on the WW that I drew, I realize that looks to be a bit early/high, however, it looked like I would only take about 9-10 ticks of heat on the failure of this pattern. As it turned out, it missed me by 2 ticks, no big deal as I was happy that I was able to see this in real time and it appeared to be a valid pattern to me, UNLESS....my perceptions on this particular chart are completely wrong.

 

I have some limited experience with various markets but I consider myself a beginner at trading and I would be grateful for any feedback on this.

 

Thank you very much,

VV

[waveslider 10]

There was a pattern here, but unfortunately you didn't see it according to the chart you posted.

 

If you use a conservative entry, the trade was not activated since the cyan line went unbroken. If you fade the entry this was a pattern failure.

 

It was a pretty ugly one all around. If point 5 would have appeared a little earlier it probably would have worked. The target line was the line connecting 1 and 4.

 

I advise you to go to wolfe's website and study the pattern again.

[BlowFish 10]

I used to use pitchforks a year or two back they are a phenomenal tool. In the end I went back to using plain old hand drawn lines - channels in particular. They just 'speak to me' more i think.

 

Vae I wont comment on Wolfe as all I know is what I have read that is freely available. The thing is once you start to see geometry its everywhere, Then the tools don't matter so much its just a question of using them consistently.

 

You mention balance points Wave, ....ever come across a guy called Michael Parsons?

[waveslider 10]

Parsons is an good guy and hard working teacher. He has an excellent book on channel trading which I would recommend to any visual type trader...

 

Potential pattern developing in ER2. A volatile reversal off of the magenta line would spell a move to the yellow line. Lowered volatility and drifting lower means the pattern is not valid and a move lower to about 772. Blue line is currently support. I'll post this same chart later to see how it all works out.

 

The lines below are just volume and a jurik MA of volume.