Wolfe Wave
A Wolfe Wave is a technical analysis pattern that indicates potential reversals in financial markets. It consists of five waves (labeled 1 to 5) and typically forms after a strong price movement. The pattern is characterized by specific price action that adheres to certain ratios and structure, suggesting a high probability of a price breakout.
Examples of Wolfe Waves can be seen in various markets:
- Example 1: In a Bullish Wolfe Wave, the price may start to form a series of lower lows (waves 1 and 3) and higher highs (waves 2, 4, and 5), indicating a potential upward breakout after the completion of the pattern.
- Example 2: In a bearish Wolfe Wave, the price shows a series of higher highs and lower lows, suggesting a potential downward breakout after the formation of the five-wave pattern.
Cases of successful Wolfe Waves often see price movements aligning with the projected breakout direction, confirming the pattern’s validity. Traders frequently use Wolfe Waves in conjunction with other technical indicators to enhance their trading strategies.