Wolfe waves are interesting patterns – that they might be used in forex trading implies something about harmonics and equilibrium in price movement – as if there’s a push and pull effect going on. For example, a drop through a trend may produce an “energy” that propels the price up significantly on the next wave (or the converse) – think about springs, compressed, expanded etc.

Five waves - showing supply and demand (resistance/support) and tending towards an equilibrium price. The bullish formation is shown in the diagram.

As with the ubiquitous Elliott wave, Wolfe waves should be identifiable whatever the timeframe, long or short term.

The characteristics of the Wolfe wave pattern are:
Waves 3 and 4 must be contained in the channel created by 1-2
Wave (1-2) equals wave (3-4) – (showing a symmetry)
There are regular time intervals between all the waves.

Wave 5 is the entry point – it breaks the trendline established by waves 1 and 3
Waves 1 and 4 can be extrapolated to create an estimated price for 6

Notice that the patterns produced are not unlike ascending/descending triangles, but with this there’s a definite final price direction proposed.

Wolfe waves are also a starting point for some distinctly fey theory where a bit too much importance gets loaded on to the pattern and harmonics – theory probably ok as far as it goes, real-life application a lot more doubtful…