Definition
A Wolfe wave is a five-point chart pattern, popularized by trader Bill Wolfe, that its proponents claim marks a natural equilibrium price toward which the market is likely to move. The five turning points are labeled 1 through 5, and a line drawn from point 1 through point 4 projects a price target — the supposed equilibrium level the reversal from point 5 will reach.
The pattern is one of several geometric, point-counting approaches to technical analysis, sharing its spirit with harmonic patterns. Its appeal is that it offers not just a reversal signal but an explicit, geometry-derived target.
Why it matters
How it works
The pattern is identified by locating five swing points that satisfy a set of proportional and symmetry rules — the spacing and slope of the waves must fall within defined bounds. Point 5 typically overshoots a trend line drawn through points 1 and 3, and that overshoot is treated as the exhaustion point where the reversal begins. The 1-to-4 line then projects where the new move should travel.
The Wolfe wave is contested. Critics note that its rules leave wide room for interpretation, that confirmed examples are easy to find only in hindsight, and that no robust statistical edge has been demonstrated.