An upward sloping trending channel will result in a bearish reversal of price and a downward sloping trend channel will result in a bullish reversal of price.
The Wolfe Wave (Not to be confused with The Elliot Wave), discovered by Bill Wolfe, is a naturally occurring, harmonic trading pattern and is generally seen as a reversal pattern. The pattern is made up of five waves (fives distinctive bull & bear movements within a channel) showing supply and demand and the fight between supply and demand towards setting a new 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 will break-out of itâs channel and where price will go after the break. When correctly exploited, Wolfe Waves can be extremely effective.
Itâs Reversal Qualities
An upward sloping trending channel will result in a bearish reversal of price and a downward sloping trend channel will result in a bullish reversal of price.
Generally the Wolfe wave can be seen when the price is contained within a channel and can give traders a good idea when the price is going to break-out of the channel and reverse. These channels can be parallel as per our Range and Channel Trading section, or can converge as per Wedge Patterns. Within these channels the Wolfe Wave has an amazing symmetrical pattern, with the wave cycles having equal time intervals between them.
The Wolfe Waveâs Psychology
Bill Wolfe suggests that the wolf wave is a naturally occurring harmonic pattern, found in all financial charts, all of the time. This suggests that thereâs no psychology behind it. If you want to get to grips with the psychological mindset of the market, then other technical analysis will have to be utilised. For instance the use of volume, support & resistance and price action may be useful in understanding the marketâs psychological state. Of course, Bill Wolfe and his disciples would be against the use of additional indicators, as Wolfe suggests that the Wolfe Wave stands alone in itâs methodology. The choice is yoursâŚ
To Sum Up
It is important to note that Wolfe Waves, are highly subjective and may need other technical analysis to figure out the market psychology (although Bill Wolfe, probably wouldnât agree with the use of further TA). The key to profiting is accurately identifying and exploiting these trends in real time, which can be more difficult than it sounds. As a result, it is wise to trade this technique with a practice account â as it is any new technique you are learning â before going live. And, remember to use stop/loss to limit your losses.
Technical analysis is not an exact science and although these indicators and patterns can increase the probability of making the correct trade, many will go against you and large losses can be incurred. Your own trading strategy needs to be formed and hopefully youâll be on your way to achieving this on completion of this course.
What you will learnâŚ
There are two parts to successful trading: a) A precise methodology and b) A healthy mental attitude. Once you have them both, you are on your way to success. The Q&A below provide a winning combination. Practical answers that serve to eliminate anxiety.
In addition during the advanced training you will learnâŚ
â Download Sample files âBill Wolfe – Wolfe Wavesâ
Course Requirement: Bill Wolfe – Wolfe Waves
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