I was introduced to this setup back when Linda Raschke mentioned the pattern in a market call. Being the ever curious one, I found some additional references and examples in her book StreetSmarts, saying that "this particular methodology is perhaps the most unique, effective trading technique I've (Linda) 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." The next jump lead to http://wolfewave.com/, an excellent source of information which was read, absorbed, and served as inspiration for use in the real world markets. Being very interested in reversal sequences, this approach appeals very much to my risk profile and trading style based on chart patterns (classic Edwards and Magee).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. I hope these recent charts serve as inspiration for further study. Who needs bulls and bears when you can run with the wolfes? ES /Emini S&P Futures Contract Setup This gem was evolving into a rather frothy afternoon session in S&P trading. Note that is it very helpful to combine the setup evolution with other key support and resistance levels. In this case, a "measured move" completes around 902 and price action falls to test the lower bound of rising channel. The bounce sets up waves 1-4, and it is only a matter of patience to wait for the full pattern completion of wave #5 - a final stop/limit clearing move into close gives us the wolfewave setup.
Target Market opens up next morning at target juncture, and immediately reverses to retest the previous day's highs.
