Educational Material

I know that for the last couple of days stop losses were hit and we did see some losses in our trades as well.

I'm publishing couple of rules that we need to follow while trading wolfe waves. These are primarily based out of my experience or should you say losses. I have made several mistakes and everytime I learn something new. I do hope that these experiences will help us become better traders.

What are Pivots?

You must understand Pivots - These are points where reversals take place.

For ease of understanding - Take a look at this chart - Pivot Highs are marked in RED and Pivot Lows are marked in Blue.

It's very important to use Channels & Trendlines while trading.
 Markets move in directions (up/down) 80% of the time. The remaining time is spent in consolidation or what you may call sideways movement. Many traders do not know where the market will head to during this sideways move. This is where we will look for opportunities from prior waves.

I'm using up-to date information to explain how to use these trendlines & channels while trading to ensure that you enter at the right time.

Here is an example of trendlines. I've used trendlines on Balrampurchini hourly chart to denote market direction.

Trendlines are drawn by connecting Pivot Highs with Pivot Highs for a Downtrend & Pivot Lows with Pivot Lows for an uptrend.

The likely probable trade would be to enter when the hourly & consecutive hourly bars close above this trendline.

NOTE: Breaking trendlines leads to formation of NEW WOLFE WAVES.

ITS VERY IMPORTANT THAT ONE BE PATIENT.

Here's a chart of Bank Nifty for today.

Overall trend down.

Channels - How differently do they work?

Channels are drawn by connecting the pivot highs with pivot highs and also pivot lows with pivot lows.

At times you may have multiple channels in an uptrend / downtrend. I've drawn two channels and colored them differently. When the pivot highs / lows are connected and they seem to converge / not be parallel they form a wedge. In a downtrend this could be bullish and in an uptrend this could be bearish.

Moving out of the basics, I'm not going to discuss some of the rules that can help you make those successful trades using Wolfe Waves.

Take a look at Balrampur - Hourly Chart - I've drawn an overall trend in Purple connecting Pivot Highs, this also indicates the overall trend is down.

Then I connect the 2 Pivot highs (Red Line) and the 2 Pivot Lows (Red Line) and this seems like a falling wedge which is usually bullish. Atleast price may touch the top of the red channel. I also draw a blue line which is a parallel line of the top two pivot highs (red line) to create a parallel channel.

The ideal entry point for Wolfe Waves is the 3rd Point. Price usually violates / penetrates the trendline indicating a change in the direction of the trend. The parallel line helps with anticipating where you would want to enter the trade. Your Stop Loss would be at the LOW. This is the ideal point to enter a trade as it gives you the opportunity to minimize your loss to the maximum extent possible.

If you are uncomfortable with this method. Look for confirmation that price has indeed breached the trendline / channel and is breaking out with conviction. You WILL need to exit @ the target line - Do not be greedy. Look for previous waves to see if there is a bearish wolfe so that you could go short on the trade.

At times when you dont know if there is a Wolfe Wave - It's better to stay out and wait for one to form.