Definition of 'Wolfe Wave'
In , it is a naturally occurring trading pattern present in all financial markets. The pattern is composed of five waves showing 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.
Investopedia explains 'Wolfe Wave'
If identified correctly, can be used to accurately predict the scope (equilibrium price) of the underlying security. To identify , 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 created by waves 1 and 3 and is the entry point
The estimated price is a price along the created by waves 1 and 4 (point 6).