Candlesticks, Fibonacci, and Chart Pattern Trading Tools : a synergistic Strategy to Enhance Profits and Reduce Risk

RELIABILITY OF PHI-ELLIPSES RECONSIDERED
To summarize our f indings on PHI-ellipses as Fibonacci trading tools,
we reconsider the reliability of PHI-ellipses in the various f ields in
which they can be applied to chart analysis. PHI-ellipses as invest-
ment devices are special because they make chart patterns visible.
When working with PHI-ellipses, investors always know what to look
for in the markets no matter how confusing daily, weekly, or monthly
Figure 5.45
Market entries short on false breakouts intraday.
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RELIABILITY OF PHI-ELLIPSES RECONSIDERED
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charts may appear. With modern computer technology at investors’
f ingertips, PHI-ellipses become very valuable.
The basic structure of a PHI-ellipse is simple. PHI-ellipses cir-
cumvent a minimum 3-wave swing. To calculate PHI-ellipses, three
points are needed, a starting point and two side points. The final point
of a PHI-ellipse projects a future market move as the PHI-ellipse de-
velops. The f inal point of a PHI-ellipse is the decisive point to watch.
In the application of PHI-ellipses, investors are able to master
trend patterns and sideward patterns. PHI-ellipses consist of three
trading dimensions—price, time, and angle—that are seldom found
in a single trading tool. When a solid analysis of all three dimensions
precalculates the same turning point in a market, we may invest with
conf idence.
To make our entry signals safer, we must filter out entry points
with a high success rate. This does not mean that every trade will
turn out as a winning trade. Getting stopped out on stop-losses and
reentering a market while sticking to strict entry rules, stop-loss
rules, and reentry rules are all part of using Fibonacci tools in
volatile markets. The best entry point on PHI-ellipses with the high-
est rate of prof itable trades only happens at the very end of a PHI-
ellipse. The investor should then enter the market counter to the
main trend direction.
By generating trading signals based on the end of a PHI-ellipse,
we sell high or buy low. A countertrend approach requires consider-
able discipline, since there is not much support in the markets when
a trading signal appears. We will never know whether we meet the
highest high or the lowest low at the time we establish a position in
a market, but our chances for prof itable decisions will be good, at
least as far as the historical test runs shown in the preceding sec-
tions are concerned.
In the end, the slope of a PHI-ellipse determines whether we re-
ceive a trading signal. We will get sell signals as long as the slope of
a PHI-ellipse points upward. We will get buy signals countertrend as
long as the slope of a PHI-ellipse points downward. In some cases, we
will get trading signals in straight sideward markets when a PHI-
ellipse runs mainly horizontally.
It boosts our conf idence if other Fibonacci trading tools conf irm
trend reversals derived from PHI-ellipses. These conf irmations come
either from price analysis based on corrections and extension or time
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