A five-point equilibrium reversal pattern codified by Bill Wolfe. Wave 5 briefly overshoots the trendline, marking the reversal, while price is drawn back toward the line joining points 1 and 4.
A Wolfe Wave is a five-point pattern that reads a return to equilibrium.
Codified by the trader Bill Wolfe, it follows a set of rules in how points 1 through 5 swing, and when those rules line up you can read both the reversal and its destination at once. That is what sets it apart from other reversal patterns.
Here is the skeleton. Points 1, 3, and 5 line up along roughly one straight line (the upper line when it builds a top, the lower line when it builds a bottom). Points 2 and 4 line up along a second straight line.
The two lines tend to converge, so the shape looks much like a wedge.
The final wave, wave 5, briefly shoots past (overshoots) the trendline drawn through points 1 and 3. That overshoot is exactly where the Wolfe Wave looks for its reversal.
The destination is shown by the line joining points 1 and 4. This line is called the EPA line (Estimated Price at Arrival), and price tends to be drawn back toward this 1-4 line, the point of equilibrium.
How to Read
OANDA:EURUSD
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