Advanced Network Patterns: Wolfe Waves and also Gartleys

Number 1: Favorable Wolfe Wave Pattern; Figure 2: Bearish Wolfe Wave Pattern

Resource: www.harmonictrader.com

Wolfe Waves

Below are some vital factors to remember for recognizing Wolfe Waves:

The pattern can be located in:

Notice that the point at wave 5 revealed on the representations over is a move a little over or below the channel developed by waves 1-2 and 3-4.

Advanced Channel Patterns: Wolfe Waves and Gartleys

Figure 4: Favorable Pattern

Number 5: Bearish PatternSource: www.harmonictrader.com

At point B, the price once more makes a smaller impulse opposite to that of A. Ideally, the retracement BC should be between 61.8% as well as 78.6% of the Abdominal Muscle rate range, regardless of the size of the lines.

  • Waves 3-4 must stay within the channel created by waves 1-2.
  • Waves 1-2 equal waves 3-4 (showing symmetry).
  • Wave 4 revisits the channel of points established by waves 1-2.
  • There should be regular timing intervals between waves.
  • Waves 3 and 5 are usually 127% or 162% (Fibonacci) extensions of the previous channel point.

Here are the essential points to remember for Gartleys:

  • Rising channels in an uptrend.
  • Falling channels in a downtrend.
  • Level channels during consolidation periods.

The condition in which these patterns can be located depends on whether they are favorable or bearish:

Figure 6 shows the bullish Gartley at job.

Advanced Channel Patterns: Wolfe Waves and Gartleys

Figure 3: Chart provided by http://www.chart.nu

It is also important to note that Wolfe Waves, along with most pattern trading strategies, are highly subjective. The key to profiting is accurately identifying and exploiting these trends in real time, which can be more difficult than it sounds. As a result, it is wise to paper trade this technique –as it is any new technique you are learning – before going live. And remember to use stop losses to limit your losses. (See also: Launching Elliott Wave Into the 20th Century.)

The Gartley

The Gartley trading pattern was created by H. M. Gartley, who first illustrated it in his 1935 book "Profits in the Stock Market." The setup consists of a single large impulse wave followed by two small pullback impulse waves. The diagrams below show examples of the ideal setup, both bullish and bearish. In the bullish example, XA represents the first large impulse with a price reversal at A. Following Fibonacci ratios, retracement AB should be 61.8% of the price segment A minus X. This percentage is shown by the segment XB.

Advanced Channel Patterns: Wolfe Waves and Gartleys

Figure 4: Bullish Pattern

Figure 5: Bearish Pattern
Source: www.harmonictrader.com

At point B, the price again makes a smaller impulse opposite to that of A. Ideally, the retracement BC should be between 61.8% and 78.6% of the AB price range, regardless of the the length of the lines. This percentage is shown by segment AC. At C, the price again makes a reversal impulse opposite to that of B. In this pattern, again as stated by Fibonacci ratios, the retracement CD should be between 127% and 161.8% of the range BC, and this proportion is shown along the line BD.

Price D is the optimal point for buying or selling. At entry D, the target retracement to a higher price is initially 61.8% of the range of segment CD. The movement from point D to its next point is extremely profitable. Moves from point D are very quick and powerful, and they follow this model accurately 60% or more of the time.

Here are the key points to remember for Gartleys:

  • Ideally, AB equals CD in time length.
  • Point D is a 62-72% pullback from XA.
  • XD should ideally be 78.6% of the segment range XA.
  • Ideally, CD equals AB.
  • Take action at point D.

The condition in which these patterns can be found depends on whether they are bullish or bearish:

  • Bullish Gartleys occur in uptrends.
  • Bearish Gartleys occur in downtrends.

Figure 6 demonstrates the bullish Gartley at work. And Figure 7 shows the bearish Gartley:

Advanced Channel Patterns: Wolfe Waves and Gartleys

Figure 6: Chart provided by http://www.chart.nu

Advanced Channel Patterns: Wolfe Waves and Gartleys

Figure 7: Chart provided by http://www.chart.nu

The Bottom Line 

Both of these channeling techniques provide traders with a reliable way to locate breakout points and determine their scope. When using these patterns in conjunction with basic channeling rules, traders have access to a reliable and extremely versatile trading system to use in any market conditions. (For additional reading, check out: Channeling: Charting a Path to Success.)

Resources:

  • Wolfe Wave (www.wolfewave.com): The original discoverer of the Wolfe Wave channel pattern.
  • Voodoo Trader (www.chart.nu): Channels and chart signal identification for many stocks.
  • ChartSetups (www.chartsetups.com): A stock signals provider utilizing advanced channeling patterns.

Tip: For investors’ reference only, it does not constitute investment advice. Financial investment products have high risks and are not suitable for every investor. If necessary, please consult a professional consultant.