Top 10 Patterns (Wolfe Wave) #7
Wolfe Waves:Example of a bullish Wolfe wave on 15 mn GbpChf chart. Can be both bearish or bullish and on any time frames.
The key to recognizing the setup is symmetry. Ideally, waves 1-3-5 are established with very regular timing intervals between moves.
The other key ingredient is that the wave 4 should revisit the price range established by waves 1-2 for the best results.
Another way to describe the pattern is that it comes as a rising wedge / channel in an uptrend, or falling wedge / channel in a downtrend. Wave 5 is often a false breakout move beyond the bounds of the pattern.
Unlike either bull or bear flags, the movement is in the same direction as the overall trend, with the overlapping waves giving signals that an impending reversal is taking shape.
This pattern has different names, depending on the source - Larry Pesavento describes the pattern as "3 pushes to a top/bottom" and uses Fibonacci relationships to confirm the setup (waves 3 and 5 are 127% or 162% extensions of the previous pullback.) Jeff Cooper uses "Cooper 1-2-3 swing" nomenclature, and Linda Raschke likes to call this setup "3 indians".
The unique quality about Wolfe waves, however, is the objective target projection from waves 1 -> 4. Despite the great explanation and examples provided on Bill Wolfe's site, I continue to get questions about how much I trust this setup. Very much so.
The key to recognizing the setup is symmetry. Ideally, waves 1-3-5 are established with very regular timing intervals between moves.
The other key ingredient is that the wave 4 should revisit the price range established by waves 1-2 for the best results.
Another way to describe the pattern is that it comes as a rising wedge / channel in an uptrend, or falling wedge / channel in a downtrend. Wave 5 is often a false breakout move beyond the bounds of the pattern.
Unlike either bull or bear flags, the movement is in the same direction as the overall trend, with the overlapping waves giving signals that an impending reversal is taking shape.
This pattern has different names, depending on the source - Larry Pesavento describes the pattern as "3 pushes to a top/bottom" and uses Fibonacci relationships to confirm the setup (waves 3 and 5 are 127% or 162% extensions of the previous pullback.) Jeff Cooper uses "Cooper 1-2-3 swing" nomenclature, and Linda Raschke likes to call this setup "3 indians".
The unique quality about Wolfe waves, however, is the objective target projection from waves 1 -> 4. Despite the great explanation and examples provided on Bill Wolfe's site, I continue to get questions about how much I trust this setup. Very much so.
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