Wolfe Waves were first noticed by the famous trader Bill Wolfe. This figure is a wedge with a particular number of waves.
In order to be rising or falling wedge may be called wave Wolf, it should have four waves. There are two types of waves Wolfe: bullish and bearish pattern.
Bearish pattern. Initially to form a model to find on the chart the minimum that the figure indicated by point b). The next wave should form a top at point B), which in turn must be above the base of a), and ends at the point r), which is lower than a basis) and above the minimum model. After that, if the new wave forms the new maxim, which in the figure marked point e), then all the conditions are met for the figure. Next, determine the boundaries of the movement chart. To do this, we spend two straight. The first - with a basis) to the first local maximum in), and the second - from the base of a) the local cons at the point r). These two lines and form the boundaries of future price movements, which indicated a wave Q).
Bullish pattern. If you look closely, the bullish pattern is mirrored bearish pattern. But still, let's face it. The very first thing to do is to find a local maximum on the chart, which will be a maximum of our model at q), the point a) will be the base model. Next must form a new local minimum model - point b). The next wave should have a top that is above the base, but below the high of the model - a point) and ended with a new local minimum - point d). This is all the conditions of the model. Next, determine the further price movement. To do this, draw two lines. The first - with a basis) to the top c) and the second - with a basis) to local minus c). These two lines are the boundaries of further movement.
Tips and Notes:
When the wave Wulff, the end of the fourth wave can be drawn away from the border, but it is not necessary to pay attention, because it is rolled back. But it can also be a big mistake if you incorrectly identified the Wolfe Wave, which can lead to a large loss of funds. To avoid this, you need to sign a warrant only when the price chart crosses the border (in the photo, is the entry point) and be sure to insure yourself stop orders.
For a trader, the big problem is the definition of Wolfe Waves, as they are not much different from the figure of a wedge. But if you look, it's not that hard. In the wedge waves gradually decrease, while the difference between the waves Wolfe waves are very big. Also a sign of Wolfe Waves can be rolled back in the fourth wave.
Most traders have a problem with the closure orders. They shut out too early, and it affects profit. If you need a warrant to open first when crossing the border, then close it to the second crossing of the boundary (in the photo, it is the exit point).
Time to identify Wolfe waves, it is a success for the trader, because then you can make the most profit. Be sure to make sure that all the conditions have been met.
Wolfe Waves are a powerful tool for predicting future price movements. Probability pattern is very large, and most of the errors, it is due to carelessness traders. From this we can conclude - a good trader is attentive trader.