Wolf(e)! Do You Know, When One's Lurking Around!!!

This particular methodology is perhaps the most unique, effective trading technique.It was developed and shared by, Bill Wolfe. For more information please visit his site. Bill's theory of wave structure is based on Newton's first law of physics: for every action there is an opposite reaction. This movement creates a definite wave with valuable projecting capabilities. This wave most clearly sets up when there is good volatility. With a bit of practice, it is easy to train your eye to spot these patterns instantly. The following rules will make sense when you examine the examples. (Please note the odd sequence in counting. As you will see, it is necessary- for the inductive analysis.)

By starting with a top or bottom on the bar chart, we are assured of beginning our count on a new wave. This count is for a buy setup. We begin the count at a top. (The wave count would be reversed if we were starting at the bottom looking for a sell setup).

1. Number 2 wave is a top.

2. Number 3 wave is the bottom of a first decline.

3. Number 1 wave is the bottom prior to wave 2 (top). Point 3 must be lower than point 1.

4. Number 4 wave is the top of wave 3. The wave 4 point should be higher than the wave 1 bottom.

5. A trend line is drawn from point 1 to point 3. The extension of this line projects to the anticipated reversal point which we will call wave 5. This is the entry point for a ride to the EPA line (1 to 4).

6. The Estimated Price at Arrival (EPA) is the trend line drawn from points 1 to 4. This projects the anticipated price objective. Our initial stop is placed just beneath the newly formed reversal at point 5. It can then be quickly moved to breakeven.

IMPORTANT POINT: You cannot begin looking for the Wolfe Wave, until points 1, 2, 3, and 4 have been formed.

Keep in mind that point 3 must be lower than point 1 for a buy setup. It must be higher than point 1 for a sell setup.

Also, on the best waves point 4 will be higher than point 1 for a buy setup and lower than 1 for a sell setup. This ensures that absolute runaway market conditions do not exist.

Though this setup occurs in all the time frames, I personally like to trade Wolfies on Intraday Patterns.

PS: If you really look hard than Wolfies are nothing but a way to play the Up and Down Channels??? Am I right?