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What Is Wolfe Wave? Wave Trading Definition & Trading Examples With Charts

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Wolfe Wave is a price action pattern that is made up of 5 waves which show supply and demand as price fights towards an equilibrium price.

Wolfe wave patterns  can develop in any timeframe, from the 1 minute up to the monthly chart and they are used for two things:

  1. predict where price is heading
  2. when it will get there.

Now, as you will read later in this article,the “WHEN” will price get there is not as important as where price is heading.

This post is my own interpretation of what wolfe wave is by reading other articles on wolfe wave online.

Wolfe waves can be bullish or bearish.  These two charts below shows the difference between the two.

Wolfe Wave Analysis

Bullish and Bearish Wolfe Wave Example (Image Source:www.insidefutures.com)

Here are 2 things you may not realize….look at the above two charts carefully, what do they remind you of?

Falling and rising wedges?  Thomas Bulkowski did mentioned on his website that the bullish wolfe wave is  a variation of the falling wedge chart pattern.

You see, a bullish wolfe wave is a variation of the falling wedge chart pattern. If you don’t know what a falling wedge chart pattern is, then it looks like this:

falling wedge chart pattern

Falling Wedge Pattern In EURAUD (Image Source: www.forexabode.com)

Now, a  bearish wolfe wave is a variation of the rising wedge chart pattern. Here’s what a rising wedge chart pattern looks like:

rising wedge chart pattern

Rising Wedge Pattern In USDCHF (Image Source: www.forexabode.com)

The 3 common places where wolfe wave can be found are these:

  1. channels in an  uptrend (look for bearish wolfe wave)
  2. and channels in a downtrend (look for bullish wolfe wave)
  3. and also on horizontal channels when price is consolidating.

And to be considered a wolfe wave, the following rules must be obeyed:

  1. Waves 3-4 must stay within the channel created by 1-2
  2. Wave 1-2 equals waves 3-4 (shows symmetry)
  3. Wave 4 is within the channel created by waves 1-2
  4. There is regular time between all waves
  5. Wave 5 exceeds trendline created by waves 1 and 3 and is the entry point

If you are really interested in wolfe wave trading, the above 5 rules will really make things very clear on what to do when drawing wolfe waves. It will also help you eliminate patterns that do not meet this criteria.

EPA stands for Estimate Price at Arrival. So the EPA line main objective is to show where a currency pair will touch that line extended into the future.

Therefore the EPA line is about PRICE…

One more thing to be aware about wolfe wave EPA lines when they are extremely steep, price possess less possibility of reaching this.

Ok, how about Wolfe Wave ETA collection?

If you’ve reserved airplane seats, you’d know what this signifies. It means Estimated Period on Appearance.

Ok, within the wolf wave trading situation, the ETA line can be used to estimation at exactly what date cost will get to the apex from the two converging outlines.

Remember, about the mt4 chart, the day is about the bottom from the chart. In the very apex in which the two converging outlines meet, should you look lower, you begin to see the date (in the actual future) that could coincide using the apex (where both converging outlines meet), correct?

That’s the purpose of that: to find what date in the future price will arrive at that point.

The ETA line is all about TIME, date.

Do the ETA line work?

Rarely. So you shouldn’t really be bothered about it at all.

The greater important line may be the EPA collection and that’s the main one you need to know how in order to draw as well as trade this.

Regardless of if the wolfe wave is actually bullish or even bearish, the wolfe wave EPA line is definitely drawn hooking up points 1 as well as 4 within the wolfe wave pattern.

Being unsure of that the potential bullish or even bearish wolfe wave pattern is actually forming may be the main trouble many investors have along with trading wolfe surf.

Why?

Because you are looking for something else and not trying to spot wolfe wave patterns forming on your chart.

That’s why you’d miss it.

But if you are really looking and searching for wolfe wave patterns in your charts, you’d see these patterns.

It may take a while because it is not a very easy trading concept to grasp especially if you are a new forex trader.

In order for you to trade wolfe waves:

  • first you have to know how to spot a wolfe wave pattern when its forming
  • and know at what point you have to buy or sell
  • and what point you have to take profit and exit a trade.

How To Trade A Bearish Wolfe Wave

This first chart below shows an ideal case of a bearish wolfe wave pattern.

bearish wolfe wave

Trading the bearish wolfe wave pattern is really simple:

  • Point 5 is where you sell. Ideally, you just don’t sell blindly. What you do is wait for bearish reversal candlesticks to confirm your analysis and then sell.
  • the EPA line is a line extended into the future so really, you cannot setup a profit target price once you’ve entered a sell trade. You will actually have to monitor it and as soon as price hits that EPA line, you take your profit and exit the trade.

How To Trade A Bullish Wolfe Wave Pattern

This chart below is an ideal case of a bullish wolfe wave pattern:

bullish wolfe wave

You do the same thing but opposite to what you did in the sell trade using the bearish wolfe pattern:

  • once you’ve can see that a bullish wolfe wave pattern may be forming, you wait until price hits point 5 and then use bullish reversal candlesticks as your signal to buy.
  • you take profit as soon as price hits the EPA line.

Here are few examples of wolfe wave trading charts. The first chart shows a Buy setup and trade on Bullish Wolfe wave chart:

trading wolfe wave in forex example

Image source: www.investoo.com

This second chart shows a bearish wolfe wave trade setup:

wolfe wave charts example 1

Image source: www.investoo.com

This chart below also show a bearish wolfe way pattern trade setup:

Wolfe Wave Trading Example

Image Source: trade2win.com

I actually do not trade wolfe surf and We don’t have to because the cost action strategies I personally use, to a good extent, would be the same kind of trading ideas as which of wolfe wave trading: its about trendlines as well as price stations. I truly don’t have to add an additional layer associated with complexity in to what I understand works upon my aspect.

But, if wolfe wave trading is that which you are following, I hope I’ve provided you an excellent rundown associated with what wolfe wave designs are, how you can spot the actual patterns as well as trade all of them.

Don’t overlook to twitter, like, share or even mention this particular in additional forex blogs/sites for those who have the chance to.

  1. Bulkowski’s Bullish Wolfe Wave at www.thepatternsite.com 
  2. The Wolfe Wave Forex Trading Strategy at www.investoo.com
  3. Stock Market – Bearish WOLFE WAVE (S&P 500 – DOW – NASDAQ) www.insidefutures.com
  4. Applying Wolfe Waves To Forex www.tradet2win.com

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