Wolfe Wave

AAA

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

INVESTOPEDIA EXPLAINS '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. Bear

    An investor who believes that a particular security or market ...
  2. Cup and Handle

    A pattern on bar charts resembling a cup with a handle. The cup ...
  3. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  4. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  5. Bull

    An investor who thinks the market, a specific security or an ...
  6. Channel

    1. The system of intermediaries between the producers, suppliers, ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Active Trading Fundamentals

    Advanced Channeling Patterns: Wolfe Waves and Gartleys

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

    Trading Failed Breaks

    Learn how to capitalize on the predictable behavior of others during breakouts and breakdowns.
  3. Charts & Patterns

    Continuation Patterns: An Introduction

    Those random movements in the charts actually form patterns. Learn the basics of what these patterns are.
  4. Trading Strategies

    Introduction To Technical Analysis Price Patterns

    To "find your game" in technical analysis, you need to be able to recognize reversals and continuations as they form.
  5. Options & Futures

    The Most Important Technical Indicators For Binary Options

    Trading binary options is not for the novice, but if you're ready to delve in, get to know the best technical indicators.
  6. Chart Advisor

    Commodity Traders Are Using Momentum To Profit From These Stocks

    Active traders are drawn to momentum strategies. These momentum winners of 2015 are worth a trader's second look.
  7. Trading Strategies

    How To Make The Most of Fibonacci Grids

    Build your Fibonacci skills by finding the longest price swing on your chart of interest and placing a grid over the trend. Repeat at shorter intervals.
  8. Trading Strategies

    Day Trading: Top Scenarios To Take Profits

    Three ways to take profits while day trading, based on price movement and what the asset is doing that day.
  9. Chart Advisor

    These 4 Swing Trades Could Place You in the Money

    Take advantage of moves both higher and lower with swing trades based on trend channels.
  10. Charts & Patterns

    How To Become A Private Equity Associate

    With the right planning, second- and third-year investment banking analysts can graduate to an associate position at a private equity firm.

You May Also Like

Hot Definitions
  1. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  2. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  3. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  5. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
  6. Irrevocable Trust

    A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets ...
Trading Center