Wolfe Wave Reversal

Entry Logic

• Enter long on a reversal at point 5 of a bullish Wolfe Wave pattern.
• Confirmation is a break of the trendline connecting points 1 and 3.
• Use a 1-hour timeframe for this pattern.
• Entry should be above the 20-period EMA.
• This pattern works best in a trending market.

Exit Logic

• The profit target is the EPA line, which is the line connecting points 1 and 4.
• Scale out 50% at the EPA line.
• Trail the remaining position with the 50-period SMA.
• Exit if price closes back below point 5.
• Exit on a confirmed bearish Wolfe Wave pattern.
• Exit if the trade is not profitable within 5 days.
• Exit if the MACD shows a bearish crossover.

Stop Loss Structure

• Place a hard stop below point 5 of the pattern.
• A soft stop is a close below the 20-period EMA.
• Maximum dollar loss is $800 per trade.
• Maximum percent loss is 1.6% of the account.
• The structural stop is the low of point 5.

Risk Management Framework

• Risk 1% of the account per trade.
• Daily loss limit is 3% of the account.
• Weekly loss limit is 7% of the account.
• Maximum drawdown is 20%.
• Minimum risk-reward ratio is 3:1.

Position Sizing Model

• Use a fixed fractional sizing model.
• Adjust size based on the distance to the stop loss.
• Use 1.5x size for A+ setups.
• Do not scale into trades.
• Scale out at the EPA line.

Trade Filtering

• Avoid trading this pattern on illiquid stocks.
• Requires a clear Wolfe Wave pattern with all five points.
• Trade only stocks and forex pairs with a clear rhythm.
• Avoid trading this pattern during low-volume hours.
• Do not trade in choppy, sideways markets.

Context Framework

• The daily chart should show a clear uptrend.
• Price should be trading above the VWAP.
• Price should be above the 200-day SMA.
• The pattern should form at a support level.
• The weekly chart should show a bullish bias.

Trade Management Rules

• Move the stop to breakeven after price has moved 2R in your favor.
• Scale out 50% at the EPA line.
• Do not add to winning trades.
• Be patient, as the target can take some time to be reached.

Time Rules

• The optimal time to trade this pattern is during the main session of the instrument.
• Avoid trading this pattern on Mondays.
• The pattern can take several days to form.

Setup Classification

• A+ setup: Perfect Wolfe Wave pattern, high volume at point 5, strong trend alignment.
• A setup: Clear Wolfe Wave pattern, moderate volume, neutral market.
• B setup: Messy Wolfe Wave pattern, low volume, counter-trend.
• C setup: No clear pattern, avoid.

Market Selection Criteria

• Trade EUR/USD, GBP/USD, and AAPL.
• The instrument should have a clear wave-like structure.
• The instrument should have a high level of liquidity.

Statistical Edge Metrics

• Expected win rate is 70%.
• Average win is 3R.
• Average loss is 1R.
• Profit factor is 2.1.
• Expectancy per trade is 1.1R.

Failure Conditions

• The strategy fails if point 5 is breached.
• A common failure is a false breakout of the 1-3 trendline.

Psychological Rules

• Have the patience to wait for the pattern to complete.
• Trust the pattern and do not exit too early.

Advanced Components

• Use a time-based projection to estimate when the EPA line will be reached.
• A volatility filter can help avoid low-probability setups.
• Avoid trading this pattern on correlated instruments.
• The 4-hour chart must confirm the reversal at point 5.

Location

• The setup is strongest when it forms at a major support or resistance level.
• The setup is weakest in the middle of a trading range.
• The location of the pattern is a key factor for success.