Wolfe

[Tasuki 10]

test--for some reason my "quick reply" posts won't post

[Tasuki 10]

great, now I can't edit posts either. Something screwy with TL servers, methinks.

[Tasuki 10]

waveslider, it looks like that ER 60 Wolfe Wave isn't going to work out, or at least I would have been stopped out by now if I'd been in it. Which raises the question, How well do WW work? As you may know, Tim Morge of medianline.com says he's done careful statistics on his pitchfork setups, and claims that they work pretty close to 80% of the time. Do you know if WW are as good as this? Thanks.

[waveslider 10]

I don't know of any stats, but observing them they work with a high probability - IF - the trade is managed well. Same with pitchforks. It's hard to quantify just like pitchforks, since there are various entries/exits that can be used.

Personally, the way I am handling it is by biasing a mechanical system I run to the upside, when above the trigger line.

If I was trading with discretion, I would wait for the trendline break to put on an initial position. Then I would add to that on a pullback.

So if I personally was trading this pattern with discretion, I wouldn't be in yet till that TL breaks. It could still very well work, but the best place to be currently, as far as this trade goes, is cash. This market is oversold and due for a bounce regardless.

I respect Tim Morge's work quite a bit, but I don't think you can quantify pitchforks that well, they are pretty subjective.

If I had to choose 2 methods to trade with discretion, I would use the WW for ranges, and the pitchfork for swinging/trending markets. The most critical thing is risk/trade management by scaling in/out, using multiple time frames.. etc..

[bh_trade 10]

Waveslider:

 

I meant to post this last night, but got preoccupied.

 

About the potential bullish ER2 pattern: the ES showed a similar potential the other day but the recent weakness has kept prices below the trigger line for 2 days now. My experience has been that when that happens, the pattern becomes unreliable, ie higher than normal chance of failure. ER2 is also hanging out below the trigger line, although not as drastically as ES.

 

Curious to hear your thoughts.

[waveslider 10]

could you post a chart of how you see it?

[Tasuki 10]

Waveslider, attached is my attempt to recreate bh's ES Wolfewave that looks unreliable. This raises a question I've been meaning to ask---for the very best WW patterns, should the extension of the line segment from point 1 to point 3 hit point 5? In an earlier post (permalink 33 on this tread), you said that my QQQQ daily chart had a point 5 that was "too deep to take the pattern seriously". Maybe that's true here for this ES pattern? More generally, though, should you be able to draw a straight line from points 1 to 3 and hit point 5? Is that part of the WW rules, or even a decent rule of thumb?

 

edit---damn, what happened to my chart? I'll try to post in following message.

[Tasuki 10]

hopefully my chart will show up this time. Definitely something fishy with TL servers...

[Tasuki 10]

Here is a beautiful WW on the ZG daily. Wish I'd seen this in real time. Note that points 1, 3 and 5 form something of an arc. No clue if this is significant in any way, whether it predicts the probable success of the WW pattern or if it's completely random. I'm still researching the Wolfe Wave, so I'm just tossing ideas out as I see them.

[waveslider 10]

Tasuki,

On your chart, points 1 and 3 should be connected. Point 5 is a violation of this line, it should at least touch it or the pattern is invalid.

 

I think that the pattern in the stock indices is still valid, but has not yet signaled an entry. There is a lot of volatility here, the purple line on my chart is a point where price should either accelerate to the downside, or reject and begin a move higher. It is an inflection point according to channel trading.

 

When the market moves below the 1-3 line too far, the corresponding target moves in the same direction. Unless price jumps quickly the other way. In that case it will often overshoot it's target, as it did the 1-3 line.

 

In the last chart an important point to note is that the #3 point should be lower than your #1 point, which would make the #5 point below the #3 point.

 

Keep throwing out ideas!

[Tasuki 10]

Thanks, waveslider,

OK, so the ZG chart (permalink #59) isn't a proper bullish Wolfe Wave, I gather, because point 3 should have been lower than point 1. I seem to be coming up with several "variations" on the Wolfe Wave theme that work out anyway...which makes me wonder how much latitude there is in this pattern.

 

Just sticking with bullish WW for the moment, I gather from what you said above that, if you extend the line segment from points 1 to 3, you should find that point 5 at least touches this downtrendling line, or breaks below it. Here's a question, and I can use the current chart of the ES (permalink 58) as my example--if the price action around point 5 keeps going down and down, as it has been doing this past week, how do you know when you've got a proper point 5? This is actually pretty important, because with a bullish Wolfe Wave, you're supposed to enter your position long after point 5 has been put in. How do you know when it's been put in? How do you know when to safely enter the position?

[waveslider 10]

Regarding your first statement, you are right, there are tons of variations of the WW. The pattern works for a reason, and as you understand that and see why it works, you will be able to isolate the good ones and toss out the bad. It aint easy and there are losers, but with patience and risk control its a solid way to trade - good risk reward profile.

 

For your question - Well, that's where your risk management and trade entry comes in. If you are a visual trader, you may want to at least wait for a downward sloping trendline to break.

 

What you should see as point #5 breaks is as I mentioned before, the action around the 1-3 line. This is an acceleration line. If the pattern is not valid, price should quickly move away from the line, with an attempt to retest from below. If you start getting this volatile sideways chop (as with this pattern) there is a good chance the thing will start working, but first it has to catch everyone off - guard.

 

Could happen today....

[bh_trade 10]

I was unsuccesful in my attempts to screen capture and post, but again am looking for clarification of your statement below. On the potentially bullish 60 minute ER2 pattern, we have been consolidating below the 1-3 trendline for several days now. Are you suggesting the consolidation below the line suggests the pattern ultimately works?

 

Regarding your first statement, you are right,

What you should see as point #5 breaks is as I mentioned before, the action around the 1-3 line. This is an acceleration line. If the pattern is not valid, price should quickly move away from the line, with an attempt to retest from below. If you start getting this volatile sideways chop (as with this pattern) there is a good chance the thing will start working, but first it has to catch everyone off - guard.

 

Could happen today....

[waveslider 10]

Looks good. First target I see is the Andrew's line (grey in middle), next the yellow WW line.

 

Price formed a symmetrical triangle over the past few days (thin blue lines), breaking of the green line is further confirmation.

 

Damn, look at the US dollar go! As gold drops... Euro falling, Canadian $ and BP also, yen stays strong..

[waveslider 10]

Bh-trade:

Yes consolidation below that line does work, especially more violent sideways chop. What you don't want to see is a gap lower (below the line) that just keeps running. That means that the 1-3 line is an acceleration line and the 1-3 line is probably the halfway mark to a larger move lower. Multiple touches of the line means the acceleration isn't happening.

[waveslider 10]

Market touched the green entry line and faded back one more time. Interesting that the Russell is holding its lows while the other indices fall. This is bullish.

 

By taking out Friday's high and low, ER2 is forming an expanding pattern. Monday was not a trend day on the daily chart, this is more sideways action trying to shake people out.

 

I like the looks of a slightly different #1 point on this pattern more and more. The reason is because of the way the 1-4 line matches up with multiple peaks. Andrew's line is still looking good for a primary target. This trade needs to form a higher low, break trend lines , and get over 785.9 level marked in black..

[waveslider 10]

game on... there is quite a bit of potential profit built into this trade.

[Tasuki 10]

waveslider, you asked me to throw out more ideas, so here goes. Attached chart probably just displays my ignorance. Is this a WW that failed, or is it not a proper WW setup (and if not, why?). I suspect that point 2 isn't a good point 2 because of the higher prices directly to the left, so it's not really a near term top--or is it? How much of a near term top does point 2 have to be? Are there other reasons why this isn't a good setup (other than the fact it failed--even market geometry patterns fail sometimes)?

[waveslider 10]

Tasuki, see how that when price hit that #5 pt., it started accelerating and didn't even look back? Right in those 2 bars where #5 is, the tails hardly overlap - this was a market in motion. What you want is a failure to accelerate - and some sideways action. Aside from that, this was a very valid pattern - good eye!

 

The #2 pt ideally would have been an attempt to move out of congestion and that would have invited some longs that would have got washed by pt. #5. That's part of the psychology I explained earlier. But you got it pretty close! The move from pt2 to pt3 was an expanding pattern indicating a range.

[Tasuki 10]

waveslider, thanks SO much for your lessons and your patience. How about this next one (see attached)? This would seem (to me) to have everything going for it:

1) waves pretty even

2) point 1 in a range

3) point 2 definitley was an attempt to break out of congestion and encouraged buyers who undoubtedly got washed out at point 5

4) point 3 lower than point 1

5) point 5 seems, so far at least, to be bouncing off the 1-3 extension line

6) line 1-4 has multiple touches

7) from a fundamental perspective, the semiconductors were the biggest disappointment in the last rally and they are both oversold and underperforming and definitely ripe for a bounce.

 

So, whaddya think? Have I got my ducks in a row this time?

[waveslider 10]

yeah I think you got this one nailed. I'm sure there's other confirmation on that chart too. It looks like a pretty major double top on one hand, but its an expanding pattern, so really it's just going sideways with increasing volatility.

If I were in this trade long I would be careful of volatility dying out - there's a chance this is a major top.

Now you understand the pattern. You can start looking for the nuances. For example, I like to see the bars between the 1 and 3 pts. to be more than the bars between the 3 and 5 pts.

I haven't quantified this, but I think it is preferable..

WW is not perfect, but the more you look at them the more you will see the how and why, and begin to understand the psychology and balance in the pattern..

Glad you are learning. Do you trade futures much? I noticed a pretty nice one in ES today. My chart program is crashing a little right now, maybe will post later..

[Tasuki 10]

Attached is a five minute chart of today's ES action. There was a semi-OK Wolfe Wave that semi-failed, and I think I know what happened.

Here's my analysis (comments, please):

1) point 1 was within a range

2) point 2 looked like it was going to break out of the range, and sucked in new buyers---notice, however, that it didn't break above the morning's high--it would have made for a stronger pattern if it had.

3) point 3 was lower than point 1, albeit not by as much as I would have liked

4) the line from point 1 to point 4 was a bit steep, methinks.

5) point 5 broke below the line from points 1 to 3, but here's the major weakness of the pattern as it set up--point 5 didn't scare people enough--it held the support line (dotted red line). The pattern would have been much stronger if it had dipped below that support--doubtless lots of traders held on

6) the place to buy would have been the break of the dotted yellow line, and your first target would have been the extension of the line from points 2 to 4 (thin green line). I haven't done a survey yet, but I'm wondering if that line from points 2-4 should maybe always be your first target (take off part of your position?) when trading a Wolfe Wave. Experienced Wolfies, your comments would be appreciated.

7) Ultiimately, the pattern failed to meet its target (the extension of the line from points 1 to 4), but it still went part way. I'm wondering how often my putative first target is hit, and then the price pulls back?

[waveslider 10]

I think you are right on all points. This was a failed pattern, and that target line was a little too steep - but those ones work some time, just lower probability. Using the top of the channel is a good 1st target, setting remaining position at breakeven.

 

Here's that pattern in ES from yesterday... 233 tick chart

[Tasuki 10]

waveslider, very sweet chart. thanks for posting it. Perfect example. One question--where would you put the point 3? See attached--I've marked up your chart. Thanks.

[waveslider 10]

My pleasure posting charts, it's nice to see eye to eye with someone else. I'd put #3 at 3a, since that was the first one. Although the 3c is lower, it doesn't penetrate the acceleration line.

You had to be quick to see this one in real-time, but the way the #4 and #5 pts came so close together, you could see that price was just trying to shake players out. Plus, there was a bullish bias to the day.

 

I'd say the first thing I look for is a point #2 and #3, and to identify that these are occurring in a range. Then wait the trap is set, a variety of things can happen next, but these are the first clues to look for to set up the pattern.

 

Also important is observing volatility in the market. This pattern comes along when the market is trying to shake out short term traders, there should be some other fake-outs nearby. You can see quite a few in the period between points 3 and 4. Then the shake out gets bigger (volatility still intact), and there you are, waiting for the final blast. When Joe trader gets stopped out below the pivot, it's just about time for action.