DEFINITION of 'Wolfe Wave'

In technical analysis, it is a naturally occurring trading pattern present in all financial markets. The pattern is composed of five waves showing supply and demand and a fight towards an equilibrium price. These patterns can develop over short- and long-term time frames such as minutes or weeks and are used to predict where a price is heading and when it will get there.

Wolfe Wave


Source: www.harmonictrader.com

BREAKING DOWN 'Wolfe Wave'

If identified correctly, Wolfe waves can be used to accurately predict the scope (equilibrium price) of the underlying security. To identify Wolfe waves, they must have the following characteristics:

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

The estimated price is a price along the trendline created by waves 1 and 4 (point 6).

RELATED TERMS
  1. Wave

    A pattern of behavior marked by noticeable increases and decreases. ...
  2. Impulse Wave Pattern

    A term used in the Elliott wave theory to describe the strong ...
  3. Corrective Waves

    A set of stock price movements that occur against the main trend ...
  4. Elliott Wave Theory

    Theory named after Ralph Nelson Elliott, who concluded that the ...
  5. Economic Equilibrium

    A condition or state in which economic forces are balanced. These ...
  6. Pattern

    In technical analysis, the distinctive formation created by the ...
Related Articles
  1. Trading

    Advanced Channeling Patterns: Wolfe Waves and Gartleys

    Discover how these provide the trader with insight into both the timing and scope of breakouts.
  2. Trading

    Elliott Wave Theory

    Acquaint yourself with the principle built on the discovery that stock markets did not behave in a chaotic manner.
  3. Trading

    Using Elliott Wave To Trade Forex Markets

    Learn how to set up a trading plan using this method, to profit as a forex trader.
  4. Trading

    Trading Failed Breaks

    Learn how to capitalize on the predictable behavior of others during breakouts and breakdowns.
  5. Trading

    Spotting First Rise Patterns And What To Do With Them

    The first rise pattern marks the first 100% retracement of a downtrend within the time frame of interest.
  6. Managing Wealth

    Keep It Simple - Trade With The Trend

    Often, the simple solution is the best one. Find out how easy it can be to trade with the trend.
  7. Trading

    Oil to Correct Into Buying Opportunity (USO)

    Outlook for crude oil and the USO ETF, including likely pullback levels and how far the next rally could run.
  8. Investing

    Surf's Up With Filtered Waves

    With an appropriate filter, you can ride the waters to rising profits.
  9. Trading

    Profit Without Predicting The Market

    Traders who try to predict the future can actually harm their trading options.
  10. Trading

    Advanced Fibonacci Applications

    Extensions, clusters, channels and more! Discover new ways to put the "golden ratio" to work.
RELATED FAQS
  1. How are Wolfe Wave patterns interpreted by analysts and traders?

    Read about how technical analysts and traders interpret the Wolfe Wave, a 5-point wave pattern used to predict a new equilibrium ... Read Answer >>
  2. How effective is creating trade entries after spotting a Wolfe Wave pattern?

    Learn how to identify the Wolfe wave pattern and how traders use this to create long trade entries by analyzing bullish Wolfe ... Read Answer >>
  3. Why are corrective waves useful for technical analysis?

    Discover what role a corrective wave plays in the Elliot wave theory of stock market trading and how technical analysts spot ... Read Answer >>
  4. How are corrective waves created?

    Learn how traders and analysts identify corrective waves in the Elliot Wave Theory, a controversial and complicated market ... Read Answer >>
  5. Are continuation patterns useful in forex trading and stock trading?

    Learn what a continuation pattern is in technical analysis and why it is useful in forex and stock market trading, and discover ... Read Answer >>
  6. What are the differences between patterns and trends?

    Learn the difference between a pattern and a trend. Explore how technical analysts use patterns and trends to identify trading ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center