My Wave methodology is the product of about thirty some odd years of studying technical analysis. After years of practice, I finally figured out how to balance time and space (price) so that I could predict an Estimated Time of Arrival (ETA) and the Estimated Price at Arrival (EPA). As you will see, perfection is sometimes attained. After demonstrating this to a good friend and rocket scientist, he nick named it the WolfeWave. The name stuck.
The WolfeWave is perfection in technical analysis. Perfection is embedded in the design, but it is much more practical to nail down profits as they come. I like to get in at the 5 point and plan for a move to the 1 to 4 line. I also do not count on the ETA as this adds just too many variables to the equation. In the chart examples, we give several that are perfect and several that are not. The perfect examples are to demonstrate the theory. The examples that are not perfect are to demonstrate that you do not need perfection to make money.
TACTICAL NOTES (Mental)
Understanding the goals of wave trading. Wave trading tries to exploit the swings of the market with as little exposure as possible. I view exposure as risk and try to avoid it. The most important thing that you must understand is that you are not a trend follower. Wave trading looks for precise moments to enter for a fast measured move and then exits to wait for the next Wave to develop. Often I will compare Wave trading to a surfer at the beach looking for a good ride. The two are remarkably similar and you should view charts the same as a surfer views waves. After some experience you will find more and more Waves to ride. Do not bemoan the fact that you are not always in the market. Exposure is risk!
Plan the trade, trade the plan. Many books and particularly the media romanticize trading. They portray successful traders as “gunslingers” with nerves of steel. Men and women that can bet on the toss of a coin and always be right. Nothing can be further from the truth. Successful trading requires that you plan the trade in advance. When you are in the trade you will act naturally because you have already run the trade through, many times in your head. You will have traded the plan. Try to recognize the dominant wave and then try to anticipate the five turning points.
Dealing with pressure. Pressure is created by anxiety. The anxiety of not knowing what will be asked of you. The uncertainty that comes with spontaneous trading. This should not be you. Once you have the confidence, through testing, that a methodology has good logical design, then and only then, will you begin to trade with a calmness that is only associated with professionals.
Prepare yourself mentally to enter the “sweet zone.” As many of you may already know, paper trading is not at all like real trading. When you look at a chart and think that a top or bottom would have been a good place to buy or sell, you are in effect paper trading. To pick up the phone and say NOW is another story. WolfeWave analysis mentally prepares you for this opportune spot that I call the “sweet zone.”You will know in advance where it will take place. While others are panicking, you, after you have confidence in this method, will calmly pick up the phone and fade the market. It may look scary, but it only lasts for a short period of time before you’ll have a profit. You will quickly learn why some people win and some people lose. They cannot do what you can.