Here are a few charts which will help to explain a Wolfe Wave which happens to be part of a trading idea.
The first chart is a H1 of EURUSD. We can see the trend line from the 9th was broken on the 29th. We would usually expect a test of the trend extreme after a decent break of the trend line. We got the decent break of the trend line and there has been a reasonable tight bear channel from the trend extreme. At the moment it looks like support has been found at a prior signal bar high (circled) and also on another channel line dating back to the 22nd. This channel line also has the 1,3 and maybe the 5 point on it. The target line for the wave I am talking about is drawn in thick red.
However, we don;t know if the market will reverse back up so I now want to identify a reversal on a lower time frame chart such as the 5min. As we can see, there is another Wolfe Wave possibility on this lower time frame.
At the moment, although we can see a clear channel line across three lows, the last leg down was far too strong to think about going long. I would want to see a stronger break of the steep trend line followed by an attempt at bear trend resumption. I would be looking for a failure of the bear trend resumption at a support level, such as a signal bar high and maybe even a wedge bottom. I would then want a decent bull signal bar after the bulls have shown decent strength and that they may have the ability to take control over the market.
The first chart is a H1 of EURUSD. We can see the trend line from the 9th was broken on the 29th. We would usually expect a test of the trend extreme after a decent break of the trend line. We got the decent break of the trend line and there has been a reasonable tight bear channel from the trend extreme. At the moment it looks like support has been found at a prior signal bar high (circled) and also on another channel line dating back to the 22nd. This channel line also has the 1,3 and maybe the 5 point on it. The target line for the wave I am talking about is drawn in thick red.
However, we don;t know if the market will reverse back up so I now want to identify a reversal on a lower time frame chart such as the 5min. As we can see, there is another Wolfe Wave possibility on this lower time frame.
At the moment, although we can see a clear channel line across three lows, the last leg down was far too strong to think about going long. I would want to see a stronger break of the steep trend line followed by an attempt at bear trend resumption. I would be looking for a failure of the bear trend resumption at a support level, such as a signal bar high and maybe even a wedge bottom. I would then want a decent bull signal bar after the bulls have shown decent strength and that they may have the ability to take control over the market.