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

Profit/
Loss in
#
Entry Rule
At
Exit Rule
At
Points
1
Sell short HA
1,138.00
Stop-loss
1,152.00
(14.00)
2
Buy long EN 
1,137.00
Stop-loss
1,115.00
(22.00)
3
Sell short DC
1,118.00
Buy reverse
1,098.00
19.00
4
Buy reverse BH1
1,098.00
Sell reverse
1,098.00
0.00
5
Sell reverse BH2
1,098.00
Buy reverse
1,101.00
(3.00)
6
Buy reverse PP
1,101.00
Trailing stop
1,157.00
56.00
7
Sell short ES
1,109.00
Open
c06.qxd 6/16/03 4:10 PM Page 171

---

172
•
CANDLESTICKS, CHART PATTERNS, AND FIBONACCI TOOLS
Another way of merging pattern recognition into price correc-
tions as Fibonacci trading tools is to combine the 61.8 percent re-
tracement level with 3-point chart patterns.
Fibonacci Retracement 61.8 Percent and
3-Point Chart Patterns
The biggest problem in trading corrections is to stay close enough to
the fast-moving trend changes while waiting long enough for conf ir-
mation of the trend change.
Candlesticks have shown a positive effect on the total perfor-
mance of the trading strategy. How far the integration of 3-point chart
patterns leads to a similar effect can be estimated for the S&P 500
Index according to the trading signals in Figure 6.3.
Figure 6.3
S&P 500 chart from 12–01 to 04–02. Simulation of trading signals
based on plain price corrections daily in combination with 3-point chart pat-
terns (EL: entry long, ES: entry short, XL: exit long, XS: exit short, S-L: stop-loss,