Watching EURUSD - Short

The daily charts of EURUSD show an ideal Wolfe Wave in the making. From the chart below we have points 1 through 4 being formed with current price action 'hopefully' racing towards making a peak at Point 5.

EURUSD - Daily Charts, Wolfe Waves

By using Median line we notice we do not yet have a confirmation towards point 5. A break of the down sloping median line will provide the much needed validation, which is depicted as the shaded area.

EURUSD - Wolfe Wave Point 5 - Validation Criteria

The same validation can also be seen by plotting a median line sloping upwards, connecting Wolfe points 2, 3 and 4. From this median line we would be looking to take a short position as soon as this upward sloping median line is broken, with an early indication coming through when price action starts moving away from the inner median line.

EURUSD - Short Trade Set up

With this trade set up, we take our total count of potential trade set ups to 3. Other analysis can be found here for USDJPY and GBPJPY

Watching GBPJPY for a short (Wave 5)

The Sterling Yen daily chart formed a Wolfe Wave with currently the 4 wave points being in place. We see a bullish wolfe wave with current price action looking to drop to create Wave 5 and possibly enter the sweet zone.

Watching GBPJPY - Bullish Wolfe Wave

Shorting this pair would be a risky yet rewarding opportunity, with the ideal stop levels being at 156.768 with target levels at 150.453 and 147.726 respectively.

The bullish Wolfe wave shows a projection of 164.570 to be formed by the year end. Thus traders should pay attention to price action once the GBPJPY pair runs into the regions of 150 - 147/145.

The short trade which is basically a counter trend trade can also be validated by using median lines as shown in the chart below. In this case we have the potential target level at 149.641 from where we can expect a bounce and ideally drop to 146.1 before which we can expect to see the bullish price action.

GBPJPY - Short Sell Price Objectives

XAGUSD - Wolfe Wave & Median Line (Example Trade)

While browsing through some charts, I came across the silver charts and the H4 time frame showed a great example (in hindsight) on a perfect combination of Wolfe wave and median line.

The chart below shows the Bullish Wolfe Wave and how price moved in line with the EPA trendline. A quick glance of this chart shows a soft point 5 being created before price resumed a bullish run. It should be easy to note from this formation that traders would have missed taking a position well until price moved out of the upper trendline (TL2-4).

XAGUSD, H4 - Bullish Wolfe Wave

Keeping the chart the same, we now introduce Median lines to gain an idea in regards to a price reversal. By introducing the Median Line we can now see how this helped alert us for a possible change in direction, which would have been a bit more difficult (thus resulting in a delayed entry) if we traded purely on Wolfe Waves.

We notice that first price failed to breach through the Median line which was the first warning sign that a potential 'Point 5' on the Wolfe Wave was being formed. (Note that I did not plot a TL2-4 parallel line from point 3 in this case). We now get a confirmation of a potential change in direction within this 'Sweet zone' so we then look for a validation of our long trade entry.

We see price gradually moving away from the Median line. Price breaks the outer median line, goes back to retest the breakout region and proceeds higher, moving to the price range of the EPA.

XAGUSD - Wolfe Waves and Median Lines

Now that we have our entry price and the stop loss (which is a few pips below point 5), we'll look to median lines again for our profit levels. If we were to go by Wolfe wave price targets, the trade would have given a risk-reward ratio of 1:1.9. While this might seem a decent enough trade, considering price managed to reach the EPA level of 24.332, we notice when using Median lines that the upward move wasn't complete yet (we this because price continued to move within an upward channel, edging closer to the median line). If we trailed our stops with exit level pointed on prices on the lower median line, the entire trade would have given us a 1:2.1 ratio exiting our trailing stop at 24.523.

XAGUSD - Median Lines for TP levels

Follow Up - Wolfe Waves & Median Lines

This is a follow up post to the previous trade analysis using the Wolfe Wave/Median Lines methodology for the following trades:

EURUSD
GBPUSD

In this trade analysis, i'll also put in another trade which I didn't mention previously, which is the CADJPY. What makes me to bring out the CADJPY analysis is the Wolfe Wave Failure pattern which was identified earlier on with the help of median lines.

EURUSD - Trade Analysis

In the EURUSD, we were looking at a bullish Wolfe wave to go long. At the time of writing the trade analysis, we had the Wolfe wave point 4 that was formed, and thus waiting for the bearish run towards point 5 in order to initiate a long position.

In the chart below, the arrow shows the region where the bearish run towards marking point 5 started. It could have been ideal to short the pair at this point in time with the obvious price target at 1.32041 which was reached.

EURUSD - Wolfe Waves/Median Lines

The second arrow shows us how price was pretty much contained within the TL2-4 Parallel line.

Going long EURUSD???

From the above chart, now would be ideal to take a long position on EURUSD. But the question is what would be the price points and the targets. In order to find out our long entry, we'll plot a new median line with points 2, 3 and 4 from the Wolfe wave. However, the median line with the above reference points shows price action outside of the median line, which means that we need to adjust the median line.

EURUSD - Median Lines with 2, 3, 4 WW as reference points

So we look for the next relative high which is the next peak after the pont 4 on the chart and plot the new median line as shown in the chart below.

EURUSD - Manually adjusted Median Lines

From the above chart we can now ascertain our price targets. There are some important points to note however.

Conservative Approach: A long position is taken when price action moves out of the upper median line, thus giving us an entry price at 1.329 - 1.324, with stops at 1.32041. The price targets would be 1.340 and 1.345

Reasons: We take this conservative approach because we need a validation that the current bearish run is complete and thus the median line would tell us about a possible change in the short term trend.

Aggressive Approach: This long position would be initiated based off the assumption that the point 5 in Wolfe wave has been formed. It is risky but offers traders the chance to make more pips. From this perspective, our price entry point would be the region where the candle opens above the inner median line (1.322 - 1.324) with stops placed a few pips below 1.317 which was the lowest point. The price targets remains the same though.

Reasons: In the aggressive approach, we're entering the trade 50 pips ahead of the confirmation without getting any validity from the median lines about a change in trend.

GBPUSD - Trade in play

There isn't much to write about this trade as we took on the trade based off the daily charts. So far we are just a few pips away from our entry price in the positive.

GBPUSD - Bearish Wolfe Wave, Trade in play

Revisiting this trade, we can also identify new price targets which is 1.5247, 1.510 and finally 1.48117. I will update on this trade in a later post.

CADJPY - Wolfe Wave Price Failure

The CADJPY pair was showing a bearish wolfe wave on the 4-hour chart. At the time of analysis, we had point 4 being formed which meant a bullish run towards point 5 and preparing us to take on a short position from the sweet zone (in the region of 96.285 - 95.344).

We however notice a price failure and thus point 5 wasn't reached. While general convention states that it is not advisable to take a position from point 4 - 5, at times this strategy can prove to be quite profitable.

CADJPY - Wolfe Wave Price Failure

The median lines however indicated to us an early warning of price failure. As we can see from the chart, price was supposed to move up and then drop from point 5. We get an early indication though as you can see how price moved out of the median line thus telling us of a potential wolfe wave price failure.

EURUSD - Bullish Wolfe Wave

The hourly chart on EURUSD shows a bullish Wolfe Wave pattern being formed. Currently we are waiting for point 5 to be plotted in order to go long.

EURUSD - Bullish Wolfe Wave Pattern

I have also plotted the Median Line in order to give a bit more clarity for price reversal. Presently, price action is hovering close to the upper median line. Plotting the 55, 21 EMA's we see a buy set up that was last formed, thus hinting at an upcoming sell set up.

In regards to the median lines, what's interesting to note is that according to the current median line (sloping downwards) we don't get much clarity into price action. In other words, where do we short EURUSD (although it is not recommended, especially when against a bullish wolfe wave pattern).

EURUSD - Bullish Wolfe Wave, Median Line

The next ideal thing to do is to plot another median line that points upwards (which we generally use for our price targets, in relation to a bullish wolfe wave).

EURUSD - Bullish Wolfe Wave - Price Objectives

 From this new median line it is a bit more easier to notice. In other words, a short trade can be initiated based on a break of this new median line. The stops would then be the most recent previous peak at 1.34088

The target levels would be the price action along the TL1-3 followed by point 3 at 1.32966. I will continue following up on this trade and see how the median lines can help in identifying price reversals before hand.

Wolfe Wave and Median Lines - Example 2

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.

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%.

Improving Wolfe Waves with Median Lines

Before I get into the details, let me first outline the problem. The issue with Wolfe Waves is that due to the use of trendlines, it can be complicated to identify the price points. Both in terms of trade entry, profit levels and stop losses. Usually, the sweet zone is often considered a good entry point with the EPA line as the target level. But the problem is that in order to wait for a definite confirmation, in most cases, either the trade is entered or exited a bit too early or too late. Where exactly on the EPA line can one book profits?

In case of an ideal wolfe wave where ETA and EPA is respected, the price targets are easy to identify, but that is not the case in real time trading, which brought me to using Median Lines alongside Wolfe Waves.

One might argue that using Median lines might be redundant. Sure... but let's explore this in detail.

Wolfe Waves are nothing but a pattern that is used to identify price reversals. Median lines do the same thing as well, where in the failure to reach the median line often results in a change in trend (could be either consolidation or indeed a trend reversal). Again, with Median lines, there is no definite price points to enter and exit trades.

So why use Median lines?

I feel that Median lines might give us the answer, or rather the first indication of a price failure (read as reversal). Thus, Median lines could potentially point us towards an early trend change and thus alert us for taking up a position.

So let's look at some examples. In this article, i'll introduce this concept in hindsight for Facebook stock and in upcoming articles, i'll touch upon this concept in real time as the Wolfe Wave is formed.

The first example is that of the Facebook stock on the daily charts.

Facebook, Daily Chart - Wolfe Waves

We have plotted a bullish Wolfe Wave. So, if we were to go long, what would our price point be? After price breaches the 1-3 TL, we have a very large price range from $26.19 through $22.99. Even though the TL2 -4 parallel line acts as a guide for us, there is still no clear region for entry. Furthermore, it is not always that price touches this parallel line and reversal could happen well within the sweet zone. During such times, waiting for a confirmation could result in a late entry while entering a trade too early could lead to whipsaws.

Let's now introduce Median lines into this existing Wolfe Waves to see if it is of any help.

Because we're looking at a bullish Wolfe Wave, we'll start our Median Line from Point 2 which forms the high, 3 which forms the low and 4 which forms the next peak. We get a downward sloping Median line which is in line with the bullish price move.

Facebook, Daily Chart - Wolfe Waves with Median Lines. Entry/Stops

Using Median Lines for Stops and Trade Entry

Firstly, we need to lookout for the lower Median line. A breach of the lower median line would give us an indication of a failure of the Wolfe Wave as a whole. In terms of improving our trade entry, we'll let the Median line indicate to us about a price reversal, which generally happens near the median line.

Putting this together, we now see that price breached the Wolfe Wave TL2-4 Parallel line, which by itself would have not indicated anything to us. By using Median lines, we are now aware that price was dangerously close to breaching the lower median line but stopped short and reversed to the Median line.

Because price moved back above the TL2-4 parallel line, we would be looking to enter at a new candle open above the median line, which would be at $24.11 with stops a few pips below the previous key low at $22.68. From this stops, it is clear that if stops were to be hit, it would indicate a further downtrend in the stock price.

Using Median Lines for Target Levels

Facebook, Daily Chart - Wolfe Waves with Median Lines.Price Targets

Staying with the same Median lines, we can then identify our first obvious price target as Point 2 Wolfe Wave, which is $32.51. So this long trade on Facebook would have been:

Entry @ $24.11
Stops @ $22.68
Target 1 @ $32.51

Thus giving us a risk/reward ratio of almost 1:6.

We could improve upon this by plotting another median line that would project this into the future along with the ETA line. A confluence of these two lines would be our next price target, which is $35, improving our risk/reward to 7.5

While this forms just our first example, its easy to see how Median Lines can prove to be a valuable addition to increasing the odds of improving trading with Wolfe Waves. I will cover more such examples in upcoming articles and hopefully catch a few failed trades as well which will give us more hints on improving this method.

I welcome all comments and thoughts on this approach.

AUDCAD, Going Short

Here is the 15 Minute chart for AUDCAD. It consists of Primary Wolfe Wave, Andrew's median line and a secondary Wolfe Wave plotted on the 5 minute chart.

Trade is short at 1.05566 with take profit at 1.05396 and stop loss at 1.05646

The reason for going short is determined by the Median lines. Prices touched the Median line before moving out of the lower median line.

If you look closely, we see that the primary Wolfe wave 2 and 4 also form the trigger line for Andrew's median line. We know that when price moves out of the LML and out of the lower trigger line, it is a sell signal.

Plotting the secondary Wolfe wave on the 5 minute chart also confirms this notion because we have a bearish wolfe wave that is formed. All in all, price is expected to drop to 1.05363. I will try to move my stops and also take profits so as to test this trade. Below the secondary wolfe wave, plotted in Red on the 5 minute chart.

Update on Trade Set ups 04/03

EURCAD - Stopped out

I called a short at 1.33639. The trade hit the stop loss at 1.34215 (I had moved the stops a bit closer to the entry). The price currently is bullish.

EURNZD - In the trade and positive

This is currently in the trade. The entry price was modified to 1.57716. Currently price is at 1.56844. Our take profit price is 1.58820. So there is still a long way to go.

AUDJPY - Still waiting for price to be triggered

Our sell stop was at 91.992 which is yet to be triggered. The trade will expire this Friday and currently the price is at 95.881 before coming close to our entry price at 92.951.

EURCHF - In the trade and positive

EURCHF is currently in the trade, with price at this moment at 1.23040. Our entry was 1.22689 and our take profit target is 1.2326. The stop loss has been moved to the entry price, so this trade is now risk free. However, I would hate to give up on the few pips made thus so far.

However, when drawing Wolfe Waves and Pitchfork manually, I noticed that the price had touched 1.23098 which is proving to be hard to breach. Price is still outside of the lower median line. A breach to this could well see price trying to move close to the median line itself. For now, I will move my target price to 1.23098 and move my stops even closer at 1.22945, or I just might close the trade within the next hour depending on the candle that comes up.

Just to note that this is the first trade I mentioned during the 04/03 set up. The next post I made doubting the trade infact turned out to be wrong. So I will be deleting the Pending SELL order.

CADJPY - Still waiting for price to be triggered

This trade is waiting to be triggered. Current price is at 90.83. However, the entry price seemed to be the resistance level, so it might be a difficult trade to end up positive. None the less, I will be watching this trade closely.

CHFJPY - Still waiting for price to be triggered

This pair has been ranging for quite a long time after reaching highs of 103.645. This gives me hope that perhaps we can see a bearish rally some time soon. The expiry time for the price is this Friday, but I might just extend it to next Friday to be sure not to miss this one out.

AUDUSD - Stopped out

This trade hit the stop loss, 1.02481. What went wrong with this analysis is that if you look at the daily chart, price touched the Wolfe Wave EPA line before turning back. It would have been a great trade if the entry price  was set to a sell limit somewhere below 1.02012.

NEW Trades

I took one some new trades today.

NZDUSD - Short @ 0.83145

In the chart below I have plotted both Wolfe waves and Median lines. The conviction to go short comes from the fact that price hovered around the median line, this it is likely to head back to the lower median line. Also we need this reversal in order that price can drop before going bullish in order to meet the EPA Wolfe Wave line. Previous attempts of reversal failed and price dropped. The region of 0.832 is proving to be hard for the pair to breach.

Target is set to 0.82925.

EURUSD - Going Short all the way to 1.2936

In this trade, i'm trying out something new. Combining Wolfe Waves along with Andrew's Pitchfork. In the below chart, we see a bearish Wolfe Wave pattern. I have then plotted the median line (Pitchfork) to see how price is behaving.

We see that price touched the median line and then started falling. I have placed a stop loss above the resistance point at 1.307 with take profit at 1.2936, the price where the Wolfe Waves, 2, 4, and 1, 4 converge.

Of course, the risk to this trade being that price could reverse back to the median line. However, considering that price did hover around the median line before turning lower, it would be a safe bet.

Entry was at 1.3057.