In this second example, we'll take a look at the GBPUSD daily charts which is currently almost set up for a short position. I won't go into the details but simply touch upon the most important facts. Therefore, please make sure to read the previous article which gives insights into using Median lines with Wolfe Waves.
The chart below represents the daily chart for GBPUSD with the usual Wolfe waves being plotted. We notice that price managed to tread very close to the TL2-4 parallel and currently showing signs of reversal after making a new peak.
For the trader, it might take a few more candles to validate their short positions. So now let's introduce the Median lines to see if it can tell us something more.
After introducing the Median line we notice that the final peak made was quite close to the median line and the current candle that we see closed outside the median line. Thus, it would be wise to initiate a short position on the open of a new candle outside the Median line or to enter a few pips below the current candle's low.
The stops would be placed just above the recent peak. Thus our short trade entry for GBPUSD would look like this.
Entry @ 1.5525
Stops @ 1.5725
And finally, let's see look into the target levels. We must always remember that Median Lines do not in themselves give us absolute price levels but just a tool to alert us in case of an impending change in trend. Thus, at this point in time our price target would be the most obvious price point of 1.48117. As and when price starts to get closer to this level, we will then adjust our target levels accordingly.
From the above trade set up, we get a risk/reward ratio of over 3.5%.
The chart below represents the daily chart for GBPUSD with the usual Wolfe waves being plotted. We notice that price managed to tread very close to the TL2-4 parallel and currently showing signs of reversal after making a new peak.
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| Wolfe Waves - Median Lines, GBPUSD, Daily Charts |
For the trader, it might take a few more candles to validate their short positions. So now let's introduce the Median lines to see if it can tell us something more.
 |
| Wolfe Wave - Median Lines, GBPUSD - Entry/Stop Levels |
After introducing the Median line we notice that the final peak made was quite close to the median line and the current candle that we see closed outside the median line. Thus, it would be wise to initiate a short position on the open of a new candle outside the Median line or to enter a few pips below the current candle's low.
The stops would be placed just above the recent peak. Thus our short trade entry for GBPUSD would look like this.
Entry @ 1.5525
Stops @ 1.5725
And finally, let's see look into the target levels. We must always remember that Median Lines do not in themselves give us absolute price levels but just a tool to alert us in case of an impending change in trend. Thus, at this point in time our price target would be the most obvious price point of 1.48117. As and when price starts to get closer to this level, we will then adjust our target levels accordingly.
From the above trade set up, we get a risk/reward ratio of over 3.5%.
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