Although I’ve never actually traded a Wolfe Wave, I easily recognize them after the fact. But today I called this one right at the top. (Called it, but didn’t trade this one either.) The numbers on the chart are not Elliott waves, but the tracks of the Wolfe.
I first ran across this pattern in the Linda Raschke/Larry Connors book Street Smarts, but for more details check out Bill Wolfe’s web site. There are a lot of definitions of a “Wolfe” wave on the web, and mine is my own interpretation, but when they work they are impressive.
Look for three waves in one direction where point 4 pulls back into the area of the first wave. As in this example, the 5th point often overshoots a bit, so the entry is when price comes back down through the trendline. The key is the target, found with another trendline from point 1 through the bottom at point 4. Expect a reversal when price gets there.
In today’s market not only did we hit target, but a Stochastic divergence gave the signal for another entry. Do Wolfe Waves always work this well? Does the market hand out free money? But I think I’ll spend this evening building a better Wolfe trap.
