Last March 06th, I presented a potential short signal based on an advanced geometric pattern called the Wolfes Waves pattern. Now that its 1-4 Line was hit and price nearly hit our defined TG-1 = 1.05260 (missed by a mere 4.3 pips, unless you generously front your take-profit orders), we are contemplating a potential reversal to the upside. At least, this is what my predictive analysis and forecasting system indicates at this point.
Before formulating a new directional opinion - that will come on a separate chart - I would like to quickly review the features that a trader, unfamiliar with this Wolfes Waves Pattern (or "WW" for short) should consider before taking a position.
1 - 5-POINT REQUIREMENT:
The primary features of a WW are its 5-point definition, simply numbered points 1, 2, 3, 4 and 5. Typically, points 1, 3 and 5 fall in line and remain opposite to points 2 and 4.
2 - 2-LINE REQUIREMENTS:
As points 1, 3 and 5 fall into a line, a 1-3-5 Line comes into shape, opposite and convergent relative to the 2-4 Line passing through its defining points 2 and 4.
3 - CONVERGENT LINES:
Lines 1-3-5 and 2-4 should converge and form a . While it is best that the convergence occurs while both lines are pointing in the same direction (i.e.: both lines point up with the bottom 1-4 Line being pointing up steeper than 1-3-5 Line to maintain their convergence, and vice-versa: both pointing down with the top 1-3-5 Line being down steeper than the 2-4 Line to maintain their convergence). This total up or down direction is paramount to define the resulting direction in price.
4 - DIRECTION DEFINES PRICE ACTION:
Now, we have 5 points, articulated into convergent lines that form a . We also agreed that the overall direction of the two convergent lines will define either an up-slanting convergence (a ), or define a down-slanting convergence (declining ). What follows are rather simple rules:
(lesson continues in the comment section)
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Also comes into question what success rate really means. In one study, I read a success rate of pattern related to its ability to complete at a defined rage relative to its Point-D, which is the completion point of most patterns.
Yet, the argument against that was that a success rate should instead measure the ability of a pattern to retrace to at least 38.2%, since the purpose of pattern trading is not to see it to completion, but to profit from its reaction following its completion.
In the case of the Wolfe Wave, I have dug through PDFs and was not able to find any information on win rates.
Here is the site in question, which is the only reliable source I have come across that provides the most informative data on pattern performance:
Also, among all pattern traders I have encountered, I would name @Akil_Stokes (member of TradingView) who knows a lot about these geometries, as he trades off of them for a living.
Is this answering your question in a helpful way?
Besides this, if you find any literature alluding to performance records of certain patterns, feel free to share.
In my experience with this WW pattern, most of the price will revert from 5 to 5' - Although I have NOT done any calculating studies on it, my empirical sense tels me that this would happen 60% of the time, whereas a reversal at 5 would represent about half that.
In contrast, the 5" move is a rare event and indicates a very aggressive market, which I rarely trade, unless I have other technical reasons to stay in it.
Here is a link to my dropbox file, where I have some information on Wolfe Waves:
1 - https://www.dropbox.com/s/256iqbq5mnnmevk/Wolfe%20Waves%20-%20Synopsis.pdf?dl=0
2 - https://www.dropbox.com/s/qqq5ljvdl33fktx/Wolfe%20Waves.pdf?dl=0