As discussed in our latest webinar, Wolfe Waves are a 5-wave pattern which shows supply and demand as price moves towards an equilibrium. In essence, Wolfe Waves rely on three tops and two bottoms or the reverse, pointing to the correct direction, in order to evaluate where the next move is going.
For the NZDCHF pair, points 1 and 3 have been identified as the tops of a potential bearish Wolfe Wave, while points 2 and 4 appear to confirm this formation, given that they satisfy the Wolfe Wave conditions. The two lines extended from points 1-3 and 2-4 respectively converge, once extended, to set the ETA, which is found to be at approximately 19:00 server time tonight. The extension of the line from points 1-4 sets the expected equilibrium price, which is found to be at 0.6873.
However, as Bulkowski points out, the price does not need to touch the EPA line at exactly ETA, while the price can also reach ETA without reaching the EPA level. These known pitfalls of fundamental analysis suggest that traders need to be careful, especially in days where volumes are low, such as today. While the RSI and the MACD, along with the SMA crossing the LMA at 10:00 server time, show signs of bearish behaviour, traders need to follow proper risk management rules in order to minimize their downside.
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.