[waveslider]

Parsons is an good guy and hard working teacher. He has an excellent book on channel trading which I would recommend to any visual type trader...

Potential pattern developing in ER2. A volatile reversal off of the magenta line would spell a move to the yellow line. Lowered volatility and drifting lower means the pattern is not valid and a move lower to about 772. Blue line is currently support. I'll post this same chart later to see how it all works out.

The lines below are just volume and a jurik MA of volume.

[BlowFish]

A question if I may. Can we imagine a channel line (drawn parallel to 1-2 through point 3). Is it important that point 4 does not make it to that outside channel line? The reason I ask is that (I find) this is quite a useful observation in and of itself and shows potential weakness.

Cheers,

[waveslider]

HI blowfish,

I think you mean a channel line b/w points 1 and 3. Yes I agree, if this is truly a top, then the pattern is not valid and momentum will carry the price down below the 1-3 line. The 1-3 line would then act as resistance and I would use the 2-4 line as the accelerated channel line. ( I think you understand this since you know channels, sorry for anyone else who is lost ).

Basically what this is is a descending wedge pattern. When the lower line of the wedge breaks, 2 things can happen.

1. Price accelerates in a downward direction and a quick move down is made (down trend is intact).

2. Price tests lower line and rejects. In that case a dramatic reversal is made fueled by the short covering of those who sold short on the break down, and those re-entering that lost money on the previous attempt higher at point #1. (This means the market is locked in a range).

Sorry if this is a ramble, need to drink some water and coffee to wake up.

[BlowFish]

That's not quite what I meant I have added and outside/righthand line to your last drawing. Point 4 fails to meet it (which can indicated weakness).

My question is for a 'classic' WW set up is it madatory that point 4 fall short of that outside parallel channel line (the cyan squiggles) I think you still provided the answer when you said that we should see a wedge? (i.e. the naswer is yes) So if point 4 had been on that outside channel line does that invalidate the pattern?

Cheers.

[waveslider]

Bfish can you post a chart? Think I understand what you are asking and, yes that #4 pt should be well below the outside channel line. There should be a wedge formation.

Here's this same chart again, with more price data now.

This is what is going on. Currently the market is in balance, the axis is the yellow line on the chart.

Notice how the yellow line aligns with pivots on both sides of where it crosses price. Then notice how the line splits the pattern at the 50% mark.

The purple line below is a place where the market could accelerate lower. It is below the pivot #3, so those using that point as a natural location for their stops on a long position are going to sell here. Momentum players will jump on for what looks like a "matching move" lower (Many famous technicians mention matching price moves).

What often happens is that the move lower is rejected and, like a rubber band stretched in the wrong direction, it shoots higher for one last touch of the yellow line.

This happens in a volatile, ranging market. In a market where volatility is dying, a descending triangle occurs, and a move lower eventually comes.

So, bottom line with this one is that if price does a quick move lower and is rejected, the pattern dictates a move to the yellow line. If the market holds friday's lows, it will likely fill the gap from Thursday to Friday, and then re-test. This would invalidate the pattern.

Last option is for a move lower that accelerates below the purple line. The natural target for that would be a matching move lower to 763 (I think probably lower).

[Tasuki]

See attached. I'm just starting to study Wolfe Waves, but I think the attached chart is an example of a successful one.

[Tasuki]

One thing I'd like to discuss with anyone who'd interested are the differences between Gartleys (or Butterflies) and Wolfe Waves. They definitely share some similarities, but every Gartley or Butterfly pattern I've seen does not work out to be a successful Wolfe Wave, even though they seem to start out similarly. Apparently, the ratios of the swings are different, but I haven't yet discovered the exact differences. If anybody knows (or even understands what the heck I'm trying to get at) then kindly enlighten me!

The attached chart is the best example I can find right now. The "M" shaped pattern in dark green is a "Bull Butterfly" i.e. a butterfly pattern with a bullish expected outcome. If you're unfamiliar with the terms "Gartley" and "Butterfly" I'm sure there's a ton of info on the web.

As you can see from the pattern, it's possible to label the swings of the butterfly pattern as if they were Wolfe Wave swings, and indeed, in this case, if you extend the line segment from 1 to 4 you will actually get to the price that was eventually reached, but not in the time that the Wolfe Wave pattern expected---according to Wolfe, the price target should be reached at about the time when the extended line segments 1-3 and 2-4 meet. Clearly that didn't happen here.

Other examples I've found of Gartleys and Butterflies are even less Wolfe-like, usually alot less so. As I said above, there has to be something about the ratios of the swing highs an lows that's different between Gartley/Butterfly and Wolfe Waves, but as yet I'm clueless as to what the exact differences are. Like I said, if anybody understands this, please post!

[waveslider]

The one you posted is not a true WW, but it does work. Remember that the #2 pt should be a recent new high or low. There is a WW in the chart you posted. Note how precise it is. The volume at pt. #4 was a good indicator.

Tasuki- What you posted is a version of the pattern. It does work often, but not as consistently as if you follow the rules. Post a recent, uncompleted one so that you can watch it play out live.