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The complete beginner's guide: the 5-point chart pattern, the signal lifecycle and how Entry, Stop Loss and the Target Line work together.
The Wolfe Wave is a naturally occurring chart pattern that appears across all markets and timeframes. It was discovered by Bill Wolfe and is based on the idea behind Newton's third law: for every action there is an equal and opposite reaction.
Wolfe Waves identify points where the market is likely to restore its natural balance. The special part: they provide a mathematically calculable price target – the 1-4 line (also called the EPA line, Estimated Price at Arrival), which runs through points 1 and 4.
A valid Wolfe Wave consists of exactly 5 points that form a wedge. The two wedge lines (1-3 and 2-4) must run towards each other (converge).
Starting point – a significant low (bullish) or high (bearish)
First counter-move – a high (bullish) or low (bearish)
Must be beyond P1! Defines the 1-3 line
Between P1 and P2 – defines the 2-4 and 1-4 lines
Sweet zone! Sits outside the wedge, beyond the 1-3 line
Our scanner moves through several phases from detection to completion:
PENDING: a wedge was detected, price is in the sweet zone near the 1-3 line, waiting for the breakout.
ACTIVE: the breakout through the 1-3 line has happened. Entry, Stop Loss and Target Line are calculated, tracking is running.
SUCCESS: the Target Line was reached – the signal was successful.
FAILED: the Stop Loss was hit before the Target Line.
INACTIVE: the wedge became invalid – price left the sweet zone without a breakout.
Every signal consists of exactly three clear elements – you need nothing more: an Entry, a Stop Loss for protection and a Target Line as the price target.
1. Sweet zone (P5): price breaks the 1-3 line and shoots beyond it into the sweet zone – that's point 5, usually outside the wedge.
2. Return = entry: price reverses and comes back through the 1-3 line. That's exactly where you enter.
The Stop Loss limits the risk and sits tight, about 1% from the entry – this keeps the risk-reward ratio favourable.
The Target Line is the single price target. It comes from the 1-4 line (EPA = Estimated Price at Arrival) – the natural target point of the pattern. If price reaches this line, the signal counts as a success.
Bullish: the Target Line is above the entry, the Stop Loss below.
Bearish: the Target Line is below the entry, the Stop Loss above.
Wolfe Waves work in all markets. Our scanner monitors DAX, NASDAQ, NYSE, Forex, crypto and more. The best results come on higher timeframes:
| Timeframe | Description | Reliability |
|---|---|---|
| M15 | Intraday (fast, more noise) | Medium |
| H1 | Intraday / swing | High |
| H4 | Swing trading (recommended) | Very high |
| D1 | Position trading | Very high |
Learn how to actually trade the pattern under Wolfe Wave Trading, or see how detection works on the Wolfe Wave Scanner page.
A naturally occurring 5-point chart pattern forming a wedge. It provides a calculable price target via the 1-4 (EPA) line.
Every signal has exactly three: an Entry, a Stop Loss and a Target Line. The Target Line lies on the 1-4 (EPA) line.
No. All signals are for information only and do not constitute investment advice. Trading involves the risk of loss.
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