This paper presents the development of a wavelet based transformer protection algorithm. In this paper, a laboratory transformer is modelled and simulated to see the accuracy of the proposed algorithm by using ATP-EMTP. The main objective of this paper is to analyze discontinuities in current signals during phase to ground faults and phase to phase faults. The generated data is used with the MATLAB software to test the performance of the proposed technique regarding the speed of response, computational burden and reliability. Maximum Likelihood Parameter estimation is used to interpret detail coefficients.