What Is a Wolfe Wave?

There are many different ways technical traders grow their investments. They spend their time looking at market data and charts, trying to tease out patterns, like the Wolfe wave. By doing so, technical traders hope to predict rises and falls in the equity markets that interest them.

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Financial chart with graphs. — Image source: Getty Images.

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Let's say you're long ABC, Inc., and detect a Wolfe wave. The breakout point is at $34, but you've just left wave 4 and are headed toward wave 5. Once you reach wave 5, you will need to make your first move, which should be to buy more ABC, Inc., at a theoretical price representing the bottom of wave 5 of $25.

Hold until your breakout point of $34 is reached, and then sell your $25 shares. That's all there is to it -- the hardest part is detecting the wave in the first place.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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