1. Find waveform
First of all we look for an up or downtrend that obviously runs in a kind of waveform.
This system naturally works for up and downtrends.
But in this article I show it in a downtrend with a bullish breakout as a result.
If the formation is in an uptrend, the breakout is bearish.
Furthermore, it works in all time frames.
To find the beginning of a Wolfe Wave we need at least 4 points.
Two to draw an upper line and two to draw a lower line.
The area between the lines must not get bigger (lines diverge).
Otherwise it is not a Wolfe Wave!
They should either run parallel or run together (similar to a triangle).
2. Draw the Waves
Then we can draw in the previous waves.
In the end we will have 6 points.
It is important that point 3 is below point 1 and 4 is between point 1 and point 2.
If this is not the case, we do not have a real Wolfe Wave.
3. Validity check
Another important indication is that the 3. point between the 1.272 and 1.618 Fib
(from point 1 to point 2).
At least the price should have come very close to these marks, see picture.
4. Sweet zone for overreaction
If the upper line (point 2 to 4) falls deeper than to the lower line (point 1 to 3) we still have a so-called sweet zone.
This is the area we might run into if the price overreacts a bit.
To do this we duplicate the line from point 2 to 4 and place it at point 3. See picture.
The difference between the lower line and the projection of the 2 to 4 line is then our so-called Sweet Zone (blue triangle in the picture).
In this area we look for our entry.
If the line from 2 to 4 is parallel to the lower line, we have no sweet zone.
If the 2 to 4 line even cuts the bottom line upwards, it is no longer a Wolfe Wave!
5. Wait for confirmation!
Now we'll wait until a point 5 forms.
In the picture we see that the lower line of the sweet zone has now been reached perfectly.
Here is the point, at wich we would go long.
Important is! We only go long from point 5 with the goal to point 6.
Everything else before that is still too uncertain and unprofitable.
Only here (at point 5) we can estimate and decide if the Wolfe Wave is valid and therefore likely to work.
Point 5 must also be below point 3 and at least between the 1.272 and 1.618 Fib from point 3 to 4.
If this is not the case, point 5 is probably and in many cases not yet reached.
6. Set the target
If all conditions are now fulfilled and we have found our long entry, we still have to determine our goal.
For this purpose we draw a line from point 1 through point 4.
Our goal is now to touch the line.
Mostly this happens again at our Fib Levels. So the target is now between the 1.272 and 1.618 Fib from point 4 to 5.
As soon as our line is touched in this fib area, we have reached our goal.
Relatively often a harder correction in the other direction follows.
7. wait and see :D
In this case we have hit our target perfectly. Of course, it does not always work out so cleanly.
In the optimal case it is like here, that the line within the 1.272 and 1.618 Fib marks our target and the price will hit this area.
Finally
If you like this article :) please follow me and check out my website (it is in german :/) and also join my group (if you can speak german, german group), but you can download the official statement from Bill Wolfe himself there. Just scroll down on this article.
It describes and explains everything in detail.
He also lists all the different variants and approaches of this formation.
