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 bullish 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.
WOLFE WAVES FEATURES:
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 wedge. 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 - WEDGE DIRECTION DEFINES PRICE ACTION: Now, we have 5 points, articulated into convergent lines that form a wedge. We also agreed that the overall direction of the two convergent lines will define either an up-slanting convergence (a rising wedge), or define a down-slanting convergence (declining wedge). What follows are rather simple rules:
a - All wedges are complete at point-5
b - Point-5 becomes the starting point of a trading entry
c - A RISING wedge is required for a classic WW and should send price DOWN from Point-5
d - A FALLING wedge is required for a classic WW and should send price UP from Point-5
5 - DEFINING IMPORTANT TRADING POINTS: STOP-LOSS & TAKE-PROFIT LEVELS
As price action should be anticipated by the rules just defined above (i.e.: a counter-trend move once Point-5 is hit), now the trader must decide a Stop-Loss ("SL") and a Take-Profit ("TP") levels.
- DEFINING A STOP-LOSS LEVEL:
Assuming that the trader has knowledge of good money management and is capable to define his/her own risk exposure, I recommend that this trader sticks to rules defined by his/her successful habits. However, the following are market geometry-based assumptions that may fall within the trader's risk tolerance, or may exceed that risk level.
If the trader has a wide tolerance range, I recommend that he/she considers alternative points which come with the WW, namely: Points 5-prime (5') and 5-second (5").
POINT 5-PRIME:
Take the 2-4 Line, copy and place its origin (Point-2) at point-3. This resultant line defines a new 3-5' Line that will act as a back-stop to a price that exceeds Point-5. This is in fact the event that occurred precisely in the chart above (See it here: tradingview.com/e/5OKs9iez/).
POINT 5-SECOND:
Take the 2-4 Line, copy and place its origin (Point-2) at Point-1. The resultant line defines a new 1-5" Line that will act as a back-stop to a price action that exceeds bot Point-5 as well as the 3-5' Line. This is a much rarer event, but one you should remain aware.
The importance of the 3-5' Line is that, assuming your money management allows you a risk tolerance that exceeds that line, then the trader who witnesses a completion of a WW at Point-5 might consider defining a SL above the 3-5' Line, giving price action enough range to move against the Point-5 short entry in the case of a rising wedge, or a long entry in the case of a falling wedge (i.e.: an anticipated price action advanced traders define as adverse excursion).
- DEFINING A TAKE-PROFIT LEVEL:
Now that 1) a wedge has been deciphered and 2) prompted a WW trader to 3) first defined a stop-loss based on a sound money management strategy or using above 3-5' Line, and 4) enter into a trade, the last step is to define a take-profit ("TP") level.
As with the 3-5' Line (and the 1-5" Line), which define a backstop via a dynamic trendline (i.e.: by the nature of being slanted, it is called "dynamic" as opposed to horizontal, or static, target levels), the 1-4 Line (which originates at Point-1 and runs through Point-4 forward) projects forward into the silent side of the price field, where price has yet to manifest itself. And this, my friend, is the exciting moment of geometry-based pattern trading (and one we like to play around using a different formula through our predictive analysis and forecasting system).
THE BIG PICTURE:
Now, without having to recapitulate all anatomical points, I would like to bring your attention to the current chart, so that you appreciate the precision of this WW pattern. I once introduced this pattern to another group of traders, and I believe that of those who were tenacious enough to stick to its classic anatomical-point definition, they must have enjoyed the predictability of price action as it turns quite often at Point-5' (in my experience), or classically at Point-5.
In my own research in occult market geometries, I have become tolerant of certain exceptions. The following are exceptions I have incorporated into my WW pattern trading (which is now a much rarer occurrence, since I moved to rely more on my system. Yet, it's worth for you to review, consider and back test these exceptions, as it may put you on a further path of occult market geometry discoveries:
1 - THE MEDIAN RULE (One I discovered and gladly share here):
The Wedge does NOT have to be convergent, but the NET geometry has to be rising
- Here, if the 1-3-5 and the 2-4 Lines are parallel or divergence, take the midpoints between points 1 and 2 as well as 3 and 4, and run a line at these midpoints. If it is RISING, you have a high probability that price will FALL at Point-5, and vice-versa.
2 - WW NEARS 3-Drives PATTERN:
A wedge will contain all points into a pattern already known as the 3-Drives pattern. Study that 3-Drive pattern and see that the WW's own wedge is closely related to the 3-Drives pattern as well. Now, use the MEDIAN RULE and see that it applies. Remember: a rising median will see price fall at Point-5 or Point-5', and vice-versa.
3 - There are other exceptions that may decrease the probability of defining a WW or simply a wedge, but I recommend the trader to stick to the strictest rules at first, and then open up to the possibility that price has other motives than a strict adherence to occult geometries. This relaxation will bring new geometries to your mind's eyes and make you a more relaxed trader.
OVERALL:
The WW pattern is a gate-way drug to occult geometry nirvana if you are willing to loosen your mind's eye into abstract discoveries. One does not need to invent mathematical formulas, but only to stick to known Fibonacci levels, which once applied to basic geometric, can expand the price field into a night-like sky of astrological patterns. But, most important of all, before you fire up that mental rocket into that abysmal mental sky, make sure to check all your safety gears: applying sound money management, anticipating Fib-based price action, allowing price to "breathe" in the range that fits your risk tolerance, and believing that something grander than price itself is at work, and price might simply submit itself to following invisible tracings of a pre-define path.
He who can forecast that path will trade not against, but with the market, a mental condition that far surpasses the profits that come with it.
PS: If you liked the analysis, feel free to give it a "Thumb Up" and pass of a friendly referral to friends interested in occult market mathematics and hidden geometries. All targets generated are defined by non-price means, and confirmed by either proprietary patterns (Euclid, Janus, Great White, Deep Shark), or other well known patterns. However, we concentrate mainly on Shark, 5-0 and occasional Bats, to complement our predictive analysis and forecasting - Cheers, David Alcindor.
-----------------------------------------------------
Get signals, analyses and forecasts on Twitter
Alias: @4xForecaster -----------------------------------------------------
Disclaimer: Forecasts, analyses and directional opinions generated herein are for educational purposes only and are not trading recommendations. We trust that you will do your own due diligence first, then seek professional advice from a licensed professional, then enter the market at your own perils - David Alcindor - TradingView.com Alias: 4xForecaster
B10ckLanders
⋅
very informative!
thanks for all your great posts!!
Sandeep_Gupta
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Dear sir, if we take stop loss at 5', sell/buy at 5 and take profit at 1-4 line, what is the win %? Thanks.
4xForecaster
⋅
Hello @Sandeep_Gupta - In my knowledge, I have encountered only one site that conducted its own success rate definition of patterns, and Wolfe Waves were not included.
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?
David Alcindor
Sandeep_Gupta
⋅
OK, thank you.
4xForecaster
⋅
@Sandeep_Gupta - There are several examples you might be able to Google by looking up the keys "dead-on hit + 4xforecaster + Wolfe", which are the Wolve Waves resulting in hitting the 1-4 Line, as well as reversing from it.
Besides this, if you find any literature alluding to performance records of certain patterns, feel free to share.
Thank you.
David Alcindor
Sandeep_Gupta
⋅
Dear sir, the rules given by you regarding wolf wave trading are very clear and informative, I only was suspicious about the stop loss given by 5' as many times I found that the price moved beyond this point. If we take 5" then reward to risk ratio will be very less.
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.
David
Sandeep_Gupta
⋅
Thank you for the information, I gone through your page and I found the material supplied by you is very detailed and informative. I am learning a lot. lol.
4xForecaster
⋅
@Sandeep_Gupta - Great. I am very glad this was helpful. Let me know how else i can help regarding these waves.
Here is a link to my dropbox file, where I have some information on Wolfe Waves:
a - All wedges are complete at point-5
b - Point-5 becomes the starting point of a trading entry
c - A RISING wedge is required for a classic WW and should send price DOWN from Point-5
d - A FALLING wedge is required for a classic WW and should send price UP from Point-5
5 - DEFINING IMPORTANT TRADING POINTS: STOP-LOSS & TAKE-PROFIT LEVELS
As price action should be anticipated by the rules just defined above (i.e.: a counter-trend move once Point-5 is hit), now the trader must decide a Stop-Loss ("SL") and a Take-Profit ("TP") levels.
- DEFINING A STOP-LOSS LEVEL:
Assuming that the trader has knowledge of good money management and is capable to define his/her own risk exposure, I recommend that this trader sticks to rules defined by his/her successful habits. However, the following are market geometry-based assumptions that may fall within the trader's risk tolerance, or may exceed that risk level.
If the trader has a wide tolerance range, I recommend that he/she considers alternative points which come with the WW, namely: Points 5-prime (5') and 5-second (5").
POINT 5-PRIME:
Take the 2-4 Line, copy and place its origin (Point-2) at point-3. This resultant line defines a new 3-5' Line that will act as a back-stop to a price that exceeds Point-5. This is in fact the event that occurred precisely in the chart above (See it here: tradingview.com/e/5OKs9iez/).
POINT 5-SECOND:
Take the 2-4 Line, copy and place its origin (Point-2) at Point-1. The resultant line defines a new 1-5" Line that will act as a back-stop to a price action that exceeds bot Point-5 as well as the 3-5' Line. This is a much rarer event, but one you should remain aware.
The importance of the 3-5' Line is that, assuming your money management allows you a risk tolerance that exceeds that line, then the trader who witnesses a completion of a WW at Point-5 might consider defining a SL above the 3-5' Line, giving price action enough range to move against the Point-5 short entry in the case of a rising wedge, or a long entry in the case of a falling wedge (i.e.: an anticipated price action advanced traders define as adverse excursion).
- DEFINING A TAKE-PROFIT LEVEL:
Now that 1) a wedge has been deciphered and 2) prompted a WW trader to 3) first defined a stop-loss based on a sound money management strategy or using above 3-5' Line, and 4) enter into a trade, the last step is to define a take-profit ("TP") level.
As with the 3-5' Line (and the 1-5" Line), which define a backstop via a dynamic trendline (i.e.: by the nature of being slanted, it is called "dynamic" as opposed to horizontal, or static, target levels), the 1-4 Line (which originates at Point-1 and runs through Point-4 forward) projects forward into the silent side of the price field, where price has yet to manifest itself. And this, my friend, is the exciting moment of geometry-based pattern trading (and one we like to play around using a different formula through our predictive analysis and forecasting system).
THE BIG PICTURE:
Now, without having to recapitulate all anatomical points, I would like to bring your attention to the current chart, so that you appreciate the precision of this WW pattern. I once introduced this pattern to another group of traders, and I believe that of those who were tenacious enough to stick to its classic anatomical-point definition, they must have enjoyed the predictability of price action as it turns quite often at Point-5' (in my experience), or classically at Point-5.
In my own research in occult market geometries, I have become tolerant of certain exceptions. The following are exceptions I have incorporated into my WW pattern trading (which is now a much rarer occurrence, since I moved to rely more on my system. Yet, it's worth for you to review, consider and back test these exceptions, as it may put you on a further path of occult market geometry discoveries:
1 - THE MEDIAN RULE (One I discovered and gladly share here):
The Wedge does NOT have to be convergent, but the NET geometry has to be rising
- Here, if the 1-3-5 and the 2-4 Lines are parallel or divergence, take the midpoints between points 1 and 2 as well as 3 and 4, and run a line at these midpoints. If it is RISING, you have a high probability that price will FALL at Point-5, and vice-versa.
2 - WW NEARS 3-Drives PATTERN:
A wedge will contain all points into a pattern already known as the 3-Drives pattern. Study that 3-Drive pattern and see that the WW's own wedge is closely related to the 3-Drives pattern as well. Now, use the MEDIAN RULE and see that it applies. Remember: a rising median will see price fall at Point-5 or Point-5', and vice-versa.
3 - There are other exceptions that may decrease the probability of defining a WW or simply a wedge, but I recommend the trader to stick to the strictest rules at first, and then open up to the possibility that price has other motives than a strict adherence to occult geometries. This relaxation will bring new geometries to your mind's eyes and make you a more relaxed trader.
OVERALL:
The WW pattern is a gate-way drug to occult geometry nirvana if you are willing to loosen your mind's eye into abstract discoveries. One does not need to invent mathematical formulas, but only to stick to known Fibonacci levels, which once applied to basic geometric, can expand the price field into a night-like sky of astrological patterns. But, most important of all, before you fire up that mental rocket into that abysmal mental sky, make sure to check all your safety gears: applying sound money management, anticipating Fib-based price action, allowing price to "breathe" in the range that fits your risk tolerance, and believing that something grander than price itself is at work, and price might simply submit itself to following invisible tracings of a pre-define path.
He who can forecast that path will trade not against, but with the market, a mental condition that far surpasses the profits that come with it.
Cheers,
David Alcindor
TradingView.com Moderator, Alias: 4xForecaster
Predictive Analysis & Market Forecasting
PS: If you liked the analysis, feel free to give it a "Thumb Up" and pass of a friendly referral to friends interested in occult market mathematics and hidden geometries. All targets generated are defined by non-price means, and confirmed by either proprietary patterns (Euclid, Janus, Great White, Deep Shark), or other well known patterns. However, we concentrate mainly on Shark, 5-0 and occasional Bats, to complement our predictive analysis and forecasting - Cheers, David Alcindor.
-----------------------------------------------------
Get signals, analyses and forecasts on Twitter
Alias: @4xForecaster
-----------------------------------------------------
Disclaimer: Forecasts, analyses and directional opinions generated herein are for educational purposes only and are not trading recommendations. We trust that you will do your own due diligence first, then seek professional advice from a licensed professional, then enter the market at your own perils - David Alcindor - TradingView.com Alias: 4xForecaster