Wolfes Waves - 9 - Forex Trading

Wolfe's waves are one of the most powerful trading techniques ever. This is confirmed also by the creator of the method, Bill Wolfe, and his son Brian, who have been trading over the last 10 years on the S&P 500 futures with great success.

Wolfe’s waves work very well on Forex and on any time frame too. They are based on a theory due to the Newton first physics law: for every action there is an equal and opposite reaction. These movements create trends that allow us to predict future results.

Starting from a top or a low on the bar graph, we are guaranteed to start our count on a new wave. Let's see how to create a purchase setup.

1. 1. Point 2 is a top
2. 2. Point 3 is the bottom of the first transfer
3. 3. Point 1 is the bottom that precedes the top 2. Point 1 should be higher than point 3.
4. 4. Point 4 is the highest after the lowest 3.
5. 5. Now we can join with a trend line point 1 and point 3. The continuation of this trend line acts as a support to the transfer starting from step 4, anticipating a reversal point. This is the point where to enter in the position riding the EPA line (1 to 4).
6. 6. 

The profit target should be the test of the line drawn between point 1 and point 4. The initial stop loss has to be placed just below point 5. Remember that point 3 must be lower than point 1 for a purchase setup, but needs to be greater than point 1 for the short selling setup.

Let’s check a concrete example. In the month of July, GBP / JPY began a downward correction that developed three decreasing bottoms (1,3 and 5), with the fifth point that was formed exactly on the conjunction of 1 and 3. Point 4 exactly respected the rule of passing the lowest point 1. At this point the strategy, after the formation of point 5, did not expect an immediately entering in the test of the line that connected 1-3, but it just waited for the overcoming of the previous intraday top. On July the 23rd, 24th and 25th, the decreasing bottoms were recorded near the support line, but the tops were decreasing too. Only on July the 26th, a long white candle swept away all doubts. The correct trading expected the long entry over the top of July 25th (121.67) with stop on the low of July the 26th (120.86). The profit target operation was represented by the trend line that connected the bottom 1 with the top 4 and only on September the 17th it was reached at 127.20.

Currencies trading with Wolfes Waves

Another concrete example of trading with Wolfe’s Waves is on EUR / GBP. On October 2011 a first top at 0.8895 was reached by the cross, followed by a deep correction (step 2) and a subsequent rise that exceeded 1 and finished up to 0.9040 (point 3).Then a new fall below the top of 1 (point 4) and a rise up to touch the line that connected 1 to 3. At that point, our model was formed. After fixing the stop on the top of point 5 (or 0.9082), it was only needed to wait for an intraday bottom lower than the previous trading session one. The signal came on July the 4th with EUR / GBP that fell below 0.9018. At that point, the short EUR / GBP could already set a profit target, or the connection of the top at point 1 to the bottom of point 4. On January the 5th 2012 the target was achieved at 0.8338.

Currencies trading with Wolfes Waves


This article you can find at www.buzzinforex.com