Wolfe Wave

How to Trade Wolfe Wave Pattern

Unlike other chart patterns, the Wolfe wave forecasts where the price is going and when it will get there. What other patterns will do this for you? I’d be rich if I had a quarter for every time someone said they wished they had a crystal ball to predict stock prices. But what if I told you there was a crystal ball? The Wolfe Wave pattern is as close to a crystal ball as you will get in trading. If you’re wondering how to make money trading this pattern, you’ve come to the right place. 

  1. Stripped to its basics, a Wolfe Wave pattern comprises five supply and demand waves for two things.
  2. To predict where the price is going
  3. To predict when it will get there.
  4.  Each wave represents a struggle as the price fights toward an equilibrium. 
  5. What’s fantastic is that they can unfold anytime. Regardless of your penchant for the 1-minute chart or the one-month chart, you can use this pattern.

Wolfe Wave Example

The chart below shows an ideal case of a bullish Wolfe Wave pattern. And just like its partner in crime above, it’s quite easy to trade.

Bullish Wolfe Wave

To trade, you simply:

  1. Wait until the price hits point five and buy. Your buy confirmation is a bullish reversal candlestick. 
  2. Take your profit and sell once the price hits the line, extending from points 1 and 4. 

Key Takeaways

  • By drawing a line between the first and fourth points, you create a profit target line showing you where the price will go.
  • You enter into a long or short position at the beginning of the fifth point.
  • It’s a variation of the falling wedge chart pattern.

Identifying the Wolfe Wave Pattern

First identified by Bill Wolfe and his son Brian, these patterns are a game-changer. It occurs naturally in all markets. You’ll laugh to the bank if you learn to spot and ride them. 

The key word is spot, as not all crests meet the Wolfe Wave criteria. That said, to ensure you’re seeing a WW rollout, you must identify a series of price oscillations that correspond to the following criteria:

  • The waves cycle at consistent time intervals.
  • Waves 3-4 need to stay within the channel created by waves 1-2. 
  • Waves 1-2 show symmetry with waves 3-4.
  • Wave 4 is contained within the channel created by waves 1-2
  • Wave 5 exceeds the trendline created by waves 1 and 3 and breaks out of the channel; this is your entry point. 
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Price Prediction

Yes, you read that correctly! Let me explain. You create a profit target line by drawing a line between the first and fourth points.

In other words, the extension shows you where the price will go. I’m not lying; this stuff works. If you want to know how to predict when a stock will go up, then check this pattern out!

Version of a Channel

If you take a bird’s eye view of the chart below, you’ll notice the five alternating Wolfe waves form a perfect channel or an ascending/descending wedge. In some cases, we can even see a flat channel. 

Another thing to look for is how quickly the price returns to the channel. As a general rule of thumb, only trade waves that quickly retrace back into the range.

Luckily, it’s not hard to spot wolf wave patterns. Did you know that some trading platforms have the Wolfe Wave indicator built-in for those lazy (i.e., me) or, shall I say, efficient traders? 

However, if your trading platform doesn’t, don’t despair; you can use the channel indicator to help you better visualize the Wolfe Wave pattern.

How to Trade the Wolfe Wave

At Bullish Bears, we don’t just take any trade; we take high-probability trades. A high probability bullish Wolfe wave trade is one with a prior bearish trend. Thus, consider a clear bearish or bullish trend before trading this formation. Assuming you identify the wave correctly, the fifth wave begins when you enter a long or short position. You take profit at the point where lines one and four end.

The chart below shows an ideal case of a bearish WW pattern and is quite simple to trade.

Bearish Wolfe Wave Example

Bearish Wolfe Wave

To trade, you simply:

  1. Wait until the price hits point five and sell. A word to the wise: don’t go in blind; confirm your entry with a bearish reversal candlestick.
  2. Take your profit and go long once the price hits the line, extending from points 1 and 4.

Living to Trade Another Day

We talk a lot about risk management, as it’s the cornerstone of a healthy trading plan. Without a doubt, the most important thing you can do as a trader is to cover your butt.

When trading the WW, place your protective stop loss below the last wave or wave 5. Doing so will give you a very tight stop loss as a break below wave 5 invalidates the pattern. 

It’s a great momentum trading play. You can watch us trade it in our trade rooms within our Discord. We should live examples each day during our streams. The best way to learn this pattern is to see it come together in the real world on charts.

Final Thoughts

Fundamentally, the wolf wave trading strategy is an excellent market timing tool every trader should know how to use. And we want to help you succeed in trading the Wolfe Wave strategy.

But to make it work, paying attention to its rules is essential. Otherwise, the pattern may be a product of random price oscillations. 

Frequently Asked Questions

Wolfe wave patterns can be extremely accurate if the setup is there. Symmetry is a key factor to be aware of between 1-3-5, with equal timing intervals.

The Wolfe wave and Elliot wave both consist of five points. The Elliot wave is a theory based on market sentiment, and the Wolfe wave shows the natural movement of the security.

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