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).
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| 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.
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| 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.
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| XAGUSD - Median Lines for TP levels |
