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

Figure 3.30
Flag and pennant.
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TREND LINES AND TREND CHANNELS
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The initial prof it target when working with wedges is measured
from the highest high to the lowest low of the wedge formation. This
price difference is added to or deducted from the entry price level.
Summary
In this section, we have described the most important chart patterns
and have paid special attention to the market price patterns that have
at least f ive price waves (at least three peaks and two valleys or three
valleys and two peaks).
The only exception is the key-reversal day, which indicates either
an instant trend change at the end of big price move or a trend change
after a false breakout.
TREND LINES AND TREND CHANNELS
Human behavior—and investor behavior—is not only ref lected in
chart patterns such as large swings, small swings, or sideward mar-
kets, but to a signif icant degree in peak and valley formations.
In addition to the patterns described in the preceding section,
we have to consider constellations of peaks and valleys that lead to
trend lines and trend channels.
By introducing PHI-channels, or Fibonacci trend channels, as in-
dependent Fibonacci trading tools, we make use of peak and valley
formations in the markets and how to forecast major changes in trend
directions.
In this section, we f irst describe the general structure of regu-
lar trend channels. Then we discuss PHI-channels as specif ic trend
channels.
Figure 3.31
Wedge formation.
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BASIC PRINCIPLES OF TRADING STRATEGIES