Wolfe Wave Trading System| Learn To Trade Wolfe Waves

The wolfe wave trading system as the name says is based on the wolfe wave, an interesting price action trading technique to say the least.

Do I trade wolfe waves?

Partially.

Here’s how:

Here’s an example of a rising price channel and where you can sell and buy based on the diagonal price channel forex trading strategy:

Diagonal Price Channel Forex Strategy

Here’s and example of a falling price channel and where to buy and sell based on the diagonal price channel forex trading strategy:

Diagonal Price Channel Forex Trading Strategy

Ok, so what’s the main difference between the Wolfe Wave Trading and The Diagonal Price Channel Trading?

It is how the profit taking line called the EPA Line (is drawn). That’s the only big difference in my option.

By the way, you will learn about the wolfe wave EPA Line below.

What You Need

Currency Pairs: Any

Timeframes: Any

Forex Indicators: None

Anything Else?: Yes, you must know how to spot wolfe wave forming and know how to draw the wolfe wave lines that required you to buy or sell.

Tip: if you know how to spot price channels forming, trading wolfe waves will be much easier.

Wolfe Wave Identification Rules

The following rules will help you identify wolfe waves as well as draw them:

 

  • Waves 3-4 must stay within the channel created by 1-2
  • Wave 1-2 equals waves 3-4 (shows symmetry)
  • Wave 4 is within the channel created by waves 1-2
  • There is regular time between all waves
  • Wave 5 exceeds trendline created by waves 1 and 3 and is the entry point

In addition, you must know what a bullish and bearish wolfe wave patterns look like and also know how to draw the EPA line.

The Wolfe Wave EPA Line

There are two lines in the wolfe wave:

  • the EPA line
  • the ETA line

If you want to know more about the ETA Line, go here: what is wolfe wave.

The EPA stands for estimate price at arrival. That’s the only important line you need to know in wolfe wave and know how to draw it.

So how do you draw it?

Simple: just connect the point 1 and point 4 with a trendline and you have an EPA line and this works for both bullish and bearish wolfe wave patterns.

Here’s how a Wolfe Wave EPA Line is drawn for a Bullish Wolfe Wave:


wolfe-wave-epa-line

Here’s how a wolfe wave EPA Line is drawn for Bearish Wolfe Wave Pattern:

epa-line-in-bearish-wolfe-wave

Buying Rules

  1. A bullish wolfe wave pattern appears to be forming.
  2. Draw the lower trendline connecting points 1 and 3 and wait for price to hit point 5.
  3. when price hits point 5, you look to see if there is a bullish reversal candlestick pattern.
  4. place a pending buy stop order at least 2 pips above the high of that bullish reversal candlestick.
  5. stop loss should be placed a few pips below the low of the bullish reversal candlestick but if the market price is too close, move it a bit further away so that you don’t get stopped out prematurely.
  6. take profit target is when price reaches the EPA line.

wolfe wave trading strategy

Selling Rules

  1. A bearish wolfe wave pattern appears to be forming.
  2. Draw the upper trendline connecting points 1 and 3 and wait for price to hit point 5.
  3. when price hits point 5, you look to see if there is a bearish reversal candlestick pattern.
  4. place a pending sell stop order at least 2 pips below the low of that bearish reversal candlestick.
  5. stop loss should be placed a few pips above the high of the bearish reversal candlestick but if the market price is too close, move it a bit further away so that you don’t get stopped out prematurely.
  6. take profit target is when price reaches the EPA line.

wolfe wave trading system

Managing A Trade

  1. For a buy trade, when price moves up as anticipated and starts creating higher swing lows, move your stop loss and start trailing stop your trade as this happens.
  2. For a sell trade, when price moves down as anticipated and starts creating lower swing highs, move your stop loss and start trailing stop your trade as this happens.

The best trailing stop technique will show you how to use trailing stop loss correctly.

Examples of Wolfe Wave Trading

Here are few examples of wolfe wave trading so you know…

#1: Trading Bearish Wolfe Wave On CADJPY

wolfe wave trading

Image Source: Traderslaboratory.com

#2: Trading Bullish Wolfe Wave on EURUSD

wolfe wave trading strategy forex

Image Source: http://www.fibforex123.com/

Advantages of The Wolfe Wave Trading System

  1. The wolfe wave trading strategy is a system that has a really good risk:reward ratio if a trade works out as anticipated.
  2. Which means a lot more profit potential with very little risk, stop loss are tight.
  3. Reversal candlesticks will enhance trading the wolfe wave setup for buying or selling situation.

Disadvantages of The Wolfe Wave Trading Strategy

  1. wolfe wave can be a difficult trading pattern to understand and implement especially if you are new trader.
  2. You really have to train your eyes to look for the wolfe wave patterns on your charts and be seriously looking for them in order to trade them,  otherwise you will miss them because they are not obvious like support and resistance levels.
  3. like all forex strategies, there will be times you will have a good wolfe wave pattern form but price will totally ignore it so you should expect that.

Trading Elliott Waves is another interesting trading concept built around “waves” that you may like to check it out after reading this.

Don’t forget to share, tweet and mention this wolfe wave trading system to your fans and friends that are interested in forex trading.

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