It's never too late to get into a pattern. In fact, the astute trader will WAIT for price to unwind and rally temporarily back to validate the underbelly of the pattern, right along the 2-4 line. Once this occurs, the probability of trend resumption towards the 1-4 line is pretty reliable.
- David Alcindor | 4xQuad.com
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STEP-1: Look for Point-2 in relation to Point-1, on the basis that:
1 - Point-1 is a NEW structure HIGH (or low in a reverse pattern, but let's look at it from the pattern where Point-5 is the highest point and price is expected to decline to the 1-4 Line, for simplicity).
2 - Point-2 is a reactive LOW, and should be distinctively ISOLATED from the prior impulse that concluded in Point-1.
Now, from that point forward, let the pattern define Point-3 and Point-4.
Then, extend the 1-3 Line and the 2-4 Line forward.
4xQuad also noted some geometric events, one in particular named "tunneling", which is used to validate the 1-4 Line.
By definition, the WW concludes at the 1-4 Line, but that line can only exist if and only if all points have been correctly defined. This is sometimes a difficult task, especially when the WW takes on an alternate morphology.
The correct and most reliable morphology would require that the line 1-3-5 and 2-4 converge. Aside from the possibility of 5' and 5" existing across the 1-3-5 Line relative to the 2-4 Line, one should copy and rotate the 1-3-5 Line around its Point-1 AXIS so as to pass it through Point-4.
Now, here is where we love to look for geometric hints, and how we came up with the "Tunneling concept".
In order to validate the 1-4 Line, which is THE most important line, since it offers the profit target level, one has to look for the cluster of candles that have formed during the development of Points-1, 2, 3 and 4, where candle bodies and candle wicks interact in such a way that a line is able to threat through between Point-1 and Point-4, as if a tunnel had been carved out to pre-defined the passage of that 1-4 Line.
Look into all examples of WW, and see what we mean by it. If you can't find it, see whether the price did indeed conclude at that 1-4 Line, and if you have any further difficulty or question with this pattern, please, send us the chart in question, or the name, date range and timeframe, so that we may reproduce the event and look closely into it.
Hope this all makes sense.
David Alcindor | 4xQuad.com
I will try to provide live, relevant pointers on this pattern, although this is all for educational purposes only, so do your due diligence.
At this point, there is a predictable support that typically occurs, which is a rally from the level priorly defined by Point-1. So, wait for this to occur FIRST.
Then, wait for price to bounce off of its physical overhead resistance, defined by the 2-4 line. Once the underbelly of the Wolfe Pattern is reached at the 2-4 line, consider entry, but best is to consult with some other confirmatory events, such as relevant Fib levels (typically, an aggressive reversal would occur at 38.2% of the recent decline in this case.
Another indicator to consult is the RSI, especially if RSI is at or below its 60-level.
until then, I will remain quiet and entertain questions, if any.
David Alcindor | 4xQuad.com