Advanced Channeling Patterns
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Channels provide a simple and reliable way for traders to define their entry and exit points within an equity. Although the basic channel-trading rules provide traders with a good idea of where the price is going within the channel, they leave little insight into where breakouts might occur. Identifying patterns known as Wolfe Waves and Gartleys, however, can help predict these breakouts in terms of both their timing and scope (their proportion to the established channel). This article will take an in-depth look at the channeling techniques centered on these patterns and how they can be applied to help you profit.
The Wolfe Wave is a natural pattern found in every market. Its basic shape shows a fight for balance, or equilibrium, between supply and demand. This naturally occurring pattern was not invented but rather discovered as a means of predicting levels of supply and demand.
These patterns are very versatile in terms of time, but they are specific in terms of scope. For instance, Wolfe Waves occur in a wide range of time frames, over minutes or even as long as weeks or months, depending on the channel. On the other hand, the scope can be predicted with amazing accuracy. For this reason, when correctly exploited, Wolfe Waves can be extremely effective.
The overriding factor in identifying the Wolfe Wave pattern is symmetry. As shown below, the most accurate patterns exist where, between 1-3-5, there are equal timing intervals between wave cycles.
Author: Justin Kuepper
Justin Kuepper has been a freelance writer and software developer since the 2000s. He became interested in both active trading and value investing and began trading with a custodial account at an early age. He began sharing this knowledge by writing for several financial publications over the years. In addition to being an active investor and freelance writer, Justin has worked with startups in the financial industry serving both investors and public companies as a software developer and consultant.