Wolfe Wave

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).

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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 >>
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    Learn how to identify the Wolfe wave pattern and how traders use this to create long trade entries by analyzing bullish Wolfe ... Read Answer >>
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