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

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CANDLESTICKS, CHART PATTERNS, AND FIBONACCI TOOLS
market right away based on daily price data (and use a sophisticated
entry rule instead). For short-term traders, however, especially those
with an intraday perspective, these price goals are extremely impor-
tant (see Figure 6.12).
Thus far in this chapter, we have encouraged readers to wait for
additional conf irmations of trend reversals once Fibonacci correction
levels have been triggered by candlestick patterns, 3-point chart pat-
terns, or other Fibonacci devices. Short-term traders, however, who
only want to scalp a few basis points at very low risk, need to pay at-
tention to the following price targets:
• At point E, the total distance from points A to D is corrected by
50.0 percent, followed by a strong price move in the S&P 500
Index.
• At point F, the total distance from points D to E is corrected by
61.8 percent. The market price in the S&P 500 Index reverses
instantly to the downside at point F.
Figure 6.12
S&P 500 chart from 05–02 to 11–02. Short-term turning points.
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FIBONACCI PRICE CORRECTION LEVELS
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If we switch the perspective after this intermezzo from short-term
back to long-term, we f inally set the focus to prof itable combinations of
Fibonacci price corrections, Fibonacci extensions, and PHI-ellipses.
Figure 6.13 shows a perfect buy signal for a long-term invest-
ment immediately after the lowest low in the S&P 500 Index is made
late in September 2002.
New lows or highs (especially in large swings and double bottom
or double top formations) are always possible indications of major
trend reversals. Investors should be highly alert for a trend change if
other tools and parameters conf irm the turning point.
The price extension in Figure 6.13, calculated as the total dis-
tance from the high at 965.00 to the low at 868.00 multiplied by the
Fibonacci ratio 1.000, leads to a target price of 772.00. The lowest low
in the S&P 500 Index is at 775.00. One can hardly get closer. (The low-
est low in the range from 750.00 to 800.00 in the S&P 500 Index could
have been calculated many months earlier, based on other price
swings. We come back to this in the next section.)