Wolfe

[BlowFish 10]

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 10]

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 10]

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 10]

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 10]

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

[Tasuki 10]

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 10]

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.

[waveslider 10]

Tasuki, the QQQQ chart you posted - I remember that one. I think the #5 pt was too deep to take the pattern seriously. I have watched gartleys trade, but don't believe too much in the fib #s. To me, fibs are too static.

 

Waves in the market are always changing size and proportion. Fibs can work fine for a methodology with good money management, but so can many things.

 

One thing - don't take the timing of the WW seriously, it's very flawed. There are better timing methods. Even measuring distance b/w peaks/troughs.

 

There is a great book by a guy named Suri Duddela that gets deep into butterflies/gartleys. I know his work, but haven't read the book, heard it's good.

[Tasuki 10]

waveslider, thanks for your replies. Please explain why my first chart (@TU Weekly) was not a true WW. You said that the #2 point needs to be a recent new high or low--was this not a new high? OK, there were higher prices prior to point #1---does that disqualify point #2 from being a "recent" new high? It was higher than the high at the very beginning of October 2006--that doesn't count? Just trying to get the rules clear in my mind.

 

Ah, one more question--I didn't understand what you meant about the volume at point #4. Is volume analysis part of Wolfe Waves? I don't recall seeing anything about volume on Wolfe's site--maybe I missed it. Many thanks.

[waveslider 10]

Hi Tasuki, I can tell you what I see, but the more you see the pattern, the more you will get a feeling for not just wolfe waves, but market geometry in general.

 

Pull up the chart I drew and walk through it with me. The #1 point should occur within a range, not at an extreme. The reason for this is that #2 is a recent high or low and should panic people and cause volume. Above #3 point is where those who entered short will be setting their exits (bearish pattern). #4 point is a higher low putting confidence in longs. #5 point is where shorts cover and breakout traders enter long.

 

Then volume evaporates and the move fails, causing a quick move back to the 1-4 line.

 

That's the psychology of the pattern.

 

The chart you posted does have a pattern, but it is distorted. Imagine if your point #3 was a high instead of a low. Then you'd just have one big wave. What happened instead was a distortion into a mild expanding (broadening) pattern designed also to shake out longs.

 

I hope you can follow me on that. Post some more charts.

[waveslider 10]

I don't like the looks on pt #5 on this chart. If that's all we're going to get for a fakeout lower, it looks like volatility is dying in this market.

 

You want to see some good tails at that #5 location. Looks like the market may sell off a little tomorrow in the a.m. Maybe that will be the scary run for it.

 

If the # 5 isn't convincingly taken out, then the lower target line is more likely. We'll see.

[Tasuki 10]

Thanks, waveslider, your description of a proper WW is perfect. Now I have a better idea what to look for--still not sure how to make my eyes see it. I'd give anything for an indicator for Tradestation like I have for Gartleys and Butterflies. There is a WW indicator posted on TradersLab, but comments below it say that it's not close to being correct for a true WW, so I don't want to try it and start seeing the wrong thing.

 

The best I can figure, your chart is for the Russell emini, something like a 120 minute chart? In future, could you (pretty please) include the X and Y axes in your charts, as well as the contract name? It would really help. Thanks.

 

I'll post some proper WWs if I can find them. Not as easy as I originally thought!

[waveslider 10]

Sorry Tasuki, it is an hourly chart. They're trying to make a run at it this a.m.

 

As far as an indicator, I have never seen a good one. Seems likely there won't be a good one, the pattern can have so many nuances...

 

Anyway, glad to be of help. Keep looking and you will see them. Look for the #2 point first, it stands out the most since it is a recent high/low. If you see a good one and post it we'll both benefit!

[waveslider 10]

I think it might be making a move at it, the chop down around 790 is a good indication of the market trying to shake out abunch of participants.

I don't see the market going below 775 if the pattern is valid. Most likely the target is about 781.

This could be setting up a big up day for tomorrow if the pattern holds.

[Tasuki 10]

waveslider, see attached. This is how I see the pattern setting up on my chart in Tradestation. Since the price has dipped below point 5-----well, where would you put your stop on this trade, or more generally, where does one put one's stop on Wolfe Waves? For a bullish WW, shouldn't it be somewhere below point 5?

 

The profit target should be up around 840, yes?

[waveslider 10]

The stop would be below point 5 yes. Your chart is good, but I placed my point #1 at the low on the 25th.

The reason why is that this is where the move higher began after breaking out of a range. Also it is at 50% of the entire move higher.

The pattern seems to be activating nicely. Since the target is so much higher, a conservative approach would be to put on 1/2 here and another half on a trendline break higher.

I would say the actual target will be more like 845-850 or more as time passes. That's about 60 points, or $6000 per contract. Wow.

You know, we're not the only ones watching this, I guarantee. It could be a rough ride higher.

[waveslider 10]

Here's one intraday, this low should hold if the pattern is true - --

[waveslider 10]

I took this one short and exited at the andrew's line. That was fine for me, we'll see if it hits the WW target...

[waveslider 10]

whoa... precision of market geometry

[bh_trade 10]

whoa... precision of market geometry

 

 

That was indeed a beautiful, almost textbook Wolfewave. What charting package? TS by chance?

 

I typically use 1500 share for ER2 but tried to replicate using 466tick chart and Clyde Lee's Wolfewave indicator but it did not pick up that pattern this afternoon on either the 1500 share or 466 tick. Not only would you have had a nice, low risk entry point against that upper wedge, you would have had negative advance decline and pathetically negative up/dn volume supporting the trade, it was almost bulletproof. Man, I wish my indicator would have picked up that pattern today as I surely would have taken the trade.

[waveslider 10]

Tradestation, yes 466 tick is nice for ER2. It was perfect, one of those ones you want to 2nd mortgage the house for...

 

Is this WW on the 60 minute chart a perfect storm?

 

Key level will be 782 tomorrow.

[Tasuki 10]

See attached. Is this a valid Wolfe Wave?

[bh_trade 10]

Tradestation, yes 466 tick is nice for ER2. It was perfect, one of those ones you want to 2nd mortgage the house for...

 

Is this WW on the 60 minute chart a perfect storm?

 

Key level will be 782 tomorrow.

 

 

My indicator may have missed the bearish setup earlier, but it is flagging the potentially bullish one you identified. After hours had pretty hefty downside penetration of the support line, but I noticed your data is day session. Perhaps if the market stabilizes some overnight and opens near today's closing price I would feel better about taking the trade, but right now I would not be inclined due to after hours weakness taking price below support.

[waveslider 10]

Tasuki, I would say yes on your chart, it's a good one. But I would have taken the #1 point as that little pivot low b/w your point one and two.

 

The gap down tomorrow will either be a pretty evil continuation gap, and likely the 50% pt. of a whole new leg lower testing august lows, or it will gap down and be bought, forming an engulfing pattern on the day. Either way it is an inflection pt.

 

There is some evidence supporting a range and a move higher.

 

1. There are 2 unfilled gaps above.

2. ER2 began to outperform ES for the first time in quite some time. This is not typical of a declining market. ER2 also began to outperform NQ, which has been extremely strong on a relative basis.

In the attached 30 min. period chart, orange line is ES, blue line is ER2 the lines below are a MACD of their relative strength (ER2 vs ES) and the moving average of the RS line. This is an important chart to watch during the day.

3. This area has acted as support in the past.

 

4. Just looking at the chart - this market has done nothing but go sideways for a whole year. As far as I'm concerned, it's in a range until it's not. In a range you buy spikes into support and sell spikes into resistance.

 

There is some weird inter-market stuff going on - true. That dollar chart just scares the (#$# out of me for some reason. Crude oil getting volatile and toppy looking - or ready to blast parabolic.

 

Interesting markets!

[waveslider 10]

"Key level will be 782 tomorrow." I wrote yesterday. It closed on it today exactly. This could be a major turning pt. in the market since ER2 has been lagging for quite some time. The Russell index of smaller cap stocks usually leads the market into a new move.

 

We want to see some major strength quickly tomorrow, buyers with conviction, to validate this pattern.

 

A cross of the light green line would be a good conservative entry. The first target would be the andrew's line (dark cyan). The WW target is the 1-4 line, which would basically be the top of the range.