"Are there any good books or free websites/blog that will teach me more about WOLFE WAVES?"
Try VoodooTrader.com, and also try Google, using "Wolfe Wave." Here's a piece that I wrote in my May 2, 2008 Blog entry:
WOLFE WAVES:
Step 1: THE LEAD-IN - Start at an important high or low basis whatever time-frame you're using. There should be an obvious, sustained directional move during the Lead-in. There will be down days, but overall, a sustained directional move. When that strong move ends, that's Wave 1.
Step 2: The following Waves 2-5 have to be in the direction of the Lead-in. If the Lead-in was a rally, the next Waves have to be "HIGHER highs" and "HIGHER lows," like a Bear Flag, or a Bearish Rising Wedge. If the Lead-in was a selloff, the next Waves have to be "LOWER highs and LOWER lows."
Step 3. After Waves 1-4 are established, we look for a WAVE 5 FAKEOUT of the pattern that puts everyone "wrong-footed," on the wrong side of the trade. In a Bearish Wolfe Wave...The Bulls buy the breakout at Wave 5, and The Bears "Buy To Cover" the breakout at Wave 5, and it's exactly the wrong thing for everyone to do. As a result, the selloff is often sharp and swift. The opposite is the case for a Bullish Wolfe Wave (see SKF examples below).
Step 4. To determine the target line for Wave 6, connect the HIGH of Wave 1 to the LOW of Wave 4. If it's a valid Wolfe Wave, the target will get MADE, or pretty close to it.
Additional Comments: Wolfe Waves can look like Bear Flags/Bear Channels (parallel lines) in Chart #2, or like Bearish Rising Wedges, as in Chart #1. Also, it's nice if there is some symmetry between the waves, e.g. if the moves down from Wave 1-2 and from Wave 3-4 are equal in time, or have some Fibonacci relationship. Also look for symmetry between the two highs and the two lows (Waves 1-4)
The back-to-back Wolfe Waves in the SKF in 2008 probably are my favorite examples of Wolfe Waves. This prospect of the target getting MADE in this first one looked nearly impossible, the upward slope of the target line (#6)was so steep, but it did end up working out.
Interestingly, the day that the first Wolfe Wave target got MADE was the beginning of the Lead-In for this second Wolfe Wave. This one had a Double Breakdown Fakeout on September 19, on the "no shorting" ban on financials. Ironically, although "no one" wanted to be short financials. that second move down put the proverbial everyone "wrong-footed." Buying the SKF (3X short financials) turned out to be the right play, and the Wolfe Wave target got MADE.
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