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. Pattern Day Trader

    An SEC designation for traders who trade the same security four ...
  2. Channel

    1. The system of intermediaries between the producers, suppliers, ...
  3. Bear

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

    A pattern on bar charts resembling a cup with a handle. The cup ...
  5. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  6. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
Related Articles
  1. Advanced Channeling Patterns: Wolfe ...
    Active Trading Fundamentals

    Advanced Channeling Patterns: Wolfe ...

  2. Trading Failed Breaks
    Active Trading

    Trading Failed Breaks

  3. Continuation Patterns: An Introduction
    Charts & Patterns

    Continuation Patterns: An Introduction

  4. Introduction To Technical Analysis Price ...
    Trading Strategies

    Introduction To Technical Analysis Price ...

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center