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

Figure 3.10
Short entry on a combination of PHI-ellipse and trend channel (ES:
entry short).
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BASIC PRINCIPLES OF TRADING STRATEGIES
As a standard rule, when three little PHI-ellipses can be sur-
rounded by a bigger PHI-ellipse, it is often a signal of an important
turning point (see Figure 3.11).
PHI-ellipses work on monthly, weekly, daily, and intraday charts.
However, to avoid complicating the analysis at this point, we defer in-
tegrating PHI-ellipses on sets of intraday data and describe intraday
samples in a later chapter.
Summary
In this section, we have explained the basics of three trading concepts:
price corrections, price extensions, and PHI-ellipses. We have con-
centrated on these Fibonacci-related trading tools because they are
easy to understand and combine well with the candlesticks and price
patterns that are described next in this chapter.
The interested reader can f ind more detailed information in our
book 
The New Fibonacci Trader
(New York: John Wiley & Sons, 2001).
CANDLESTICK ANALYSIS
Even though the structure of candlesticks is different from that of bar
charts, it is easy to combine candlesticks with the technical chart
analysis. By focusing on the relationship between open and close
prices, candlesticks show how market forces change during market
Figure 3.11
Short entry on a large PHI-ellipse circumventing three smaller PHI-
ellipses (ES: entry short).
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CANDLESTICK ANALYSIS
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hours. This often indicates the short-term momentum in different
products or markets.
In this section, we describe basic candlestick charting and chart
analysis. We concentrate on the most meaningful patterns for traders.
Combining candlestick charts with Fibonacci trading tools and
chart patterns is an effective strategy because every combination is
based on the same principle: the analysis of investor behavior, as ex-
pressed through the Fibonacci ratios, candlesticks, or chart patterns.