Advanced Wolfe Pattern Indicator

Advanced Wolfe Wave Indicator
Advanced Wolfe Wave Indicator

The Wolfe wave indicator is a very popular chart pattern used in options trading. The indicator spots the Wolfe formations and also suggests the rules of the Wolfe wave trading system. More details on the Wolfe Wave pattern is available on the tradingview page linked below.

Link to the Indicator: Advanced Wolfe Wave Indicator

History of Advanced Wolfe Pattern Indicator

Before getting into the script, I would like to explain a bit of the history of this project. Wolfe Pattern was in the back of my mind for some time and I had several attempts so far.

Initial Attempt

When I first developed harmonic patterns, I got many requests from users to develop a script to automatically detect Wolfe formation. I thought it would be easy and started boasting everywhere that I am going to attempt this next. However, I miserably failed that time and started realising it is not as simple as I thought it would be. I started with Wolfe in mind. But, ran into issues with loops. Soon figured out that finding and drawing a wedge is trickier. I decided will explore Trendline first so that it can help find the wedge better. Soon, the project turned into something else and resulted in Auto-TrendLines-HeWhoMustNotBeNamed and Wolfe being left forgotten.

Using predefined ratios

Wolfe also has predefined fib ratios which we can use to calculate the formation. But, upon initial development, it did not convince me that it matches the visual inspection of Wolfe all the time. Hence, I decided to fall back on finding a wedge first.

Further exploration in finding wedge

This attempt was not too bad. I did not try to jump into Wolfe and nor I bragged anywhere about attempting anything of this sort. My target this time was to find how to derive a wedge. I knew then that if I manage to calculate the wedge in an efficient way, it can help further in finding Wolfe. While doing that, ended up deriving Wedge-and-Flag-Finder-Multi-zigzag - which is not a bad outcome. I got a few reminders on Wolfe after this both in comments and in PM.

You never fail until you stop trying!!

After 2 back to back hectic 50hr work weeks + other commitments, I thought I will spend some time on this. Took less than half a weekend and here we are. I was surprised at how little time it took in this attempt. But, the plan was running in my subconscious for several weeks or even months. The last two days were just putting these plans into action.

Now, let's discuss the script.

Wolfe Wave Indicator Concept

The Wolfe Wave indicator, a concept introduced by Bill Wolfe, is a predictive trading tool used to identify natural rhythm in the stock market through a pattern consisting of five waves. This sophisticated technique operates on the premise that prices move in a natural flow, creating a channel that can be used to forecast future price action in real time. By analyzing the Fibonacci extensions of the previous channel point, traders can determine potential bullish or bearish movements. A Bullish Wolfe Wave suggests an upcoming uptrend when prices break out of the channel upwards, while a Bearish Wolfe Wave indicates a potential downtrend following a downward breakout. This indicator is particularly effective in identifying target prices, offering traders strategic entry and exit points. The pattern focuses on the formation and relationship between the fourth and fifth waves, serving as a key indicator of potential support and resistance levels. Utilizable across various time frames, the Wolfe Wave indicator enhances trading strategies by providing a clearer understanding of market dynamics and future price movements, making it an invaluable tool for traders seeking to capitalize on the stock market's natural patterns. Wolfe idea is simple. Whenever a wedge is formed, draw a line joining pivots 1 and 4 as shown in the chart below:

Wolfe Wave Indicator - Drawing
Wolfe Wave Indicator - Drawing

Converging trendline forms the stop loss whereas line joining pivots 1 and 4 forms the profit-taking points.


Settings are pretty straightforward. Explained in the chart below.

Wolfe Wave Indicator - Settings
Wolfe Wave Indicator - Settings