Below is the chart with the entry point (red down arrow) and a stop loss order (red horizontal line). When the big green bar shoots up toward the pivot 5, the next bar is red, indicating a reversal is taking place. The next entry was the breakout of the low of that red bar, which didn’t happen at the next bar but the following red bar. An entry and the target are far apart, giving it a very high profit potential on the trade.

 


Figure 3 Short entry with stop loss order in place.

In this case, the target was almost reached but with a proper position management such as a trailing or moving the stop loss in the direction of the trade would have taken out the trade with a fairly handsome profit.

Another example of the Wolfe Waves was spotted recently on the GOOG chart. Figure 4 shows prices began faltering as the retest (pivot 3) failed to reach a higher high (higher than pivot 1). The market then tried again for the third time (pivot 5), this time if the failure was again evident, the bears were ready to pounce and pushed the prices down hard. Indeed, on pivot 5, prices were rejected again immediately upon touching the trendline. The short entry was made upon the break of the low of the bar that touched the trendline (red down arrow). The stop loss order would be placed just above the pivot 1 (highest of the three highs). The target has been determined already with the blue trendline drawn, which is just near the pivot 2 price levels.

 
Figure 4 GOOG uncovering the Wolfe Waves on its way to reaching target.

The Wolfe Waves rarely appear in daily charts but more so in intraday charts such as 60-minutes and lower. Although they appear complicated and messy at first, but after some experience and screen time, the pattern will provide ample opportunities to take high profit margins.