This particular methodology is perhaps the most unique, effective trading technique I've ever came across! It was developed and shared by a good friend, Bill Wolfe, who for the last 10 years has made a living trading the S&P.". Being very interested in reversal sequences, this approach appeals very much to my risk profile and trading style based on chart patterns .The key to recognizing the setup is symmetry. Ideally, waves 1-3-5 are established with very regular timing intervals between moves. The other key ingredient is that the wave 4 should revisit the price range established by waves 1-2 for the best results. Another way to describe the pattern is that it comes as a rising wedge / channel in an uptrend, or falling wedge / channel in a downtrend. Wave 5 is often a false breakout move beyond the bounds of the pattern. Unlike either bull or bear flags, the movement is in the same direction as the overall trend, with the overlapping waves giving signals that an impending reversal is taking shape. This pattern has different names, depending on the source - Larry Pesavento describes the pattern as "3 pushes to a top/bottom" and uses Fibonacci relationships to confirm the setup (waves 3 and 5 are 127% or 162% extensions of the previous pullback.) Jeff Cooper uses "Cooper 1-2-3 swing" nomenclature, and Linda Raschke likes to call this setup "3 indians". The unique quality about wolfewaves, however, is the objective target projection from waves 1 -> 4.
Despite the great explanation and examples provided on Bill Wolfe's site, I continue to get questions about how much I trust this setup. Very much so. The following are setups encountered over the years - most were called as wolfewaves right as the pattern was found, trade taken, and real money put to work to measure the risk and reward in real world cash. Realize that what I have outlined here is my approach to recognizing and trading this effective pattern setup. Mr. Wolfe is certainly the expert in this field and has no doubtedly further refined his methodology. This article was written without the benefit of his course, but rather born from a desire to more effectively trade reversal sequences - in particular, rising and falling wedges. Although many charts (especially some early examples) are not perfect wolfewaves, they document much of my own learning process. I hope they serve as inspiration for further study and successful trading.
Who needs bulls and bears when you can run with the wolfes?
