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


Figure 4.5 DJ EuroStoxx 50 chart from 08 –01 to 08 –02. Trading signals (EL



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03. Candlesticks Fibonacci and Chart Pattern

Figure 4.5
DJ EuroStoxx 50 chart from 08 –01 to 08 –02. Trading signals (EL:
entry long, ES: entry short, XL: exit long, XS: exit short, PT: profit target).
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DOUBLE TOPS AND DOUBLE BOTTOMS

51
Figure 4.5 consists of three entry signals and prof it targets.
We did not get stopped out. The strategy might look unimpressive,
but in the same time frame hardly any fund managed to get a posi-
tive performance.
To further clarify the strategy underlying double tops and dou-
ble bottoms, Table 4.1 shows a breakdown of the different signals.
These strategies work best in products with high volatility. They
can be easily applied with little work. Diversif ication is important to
reduce the portfolio risk.
Summary
The strategies of double tops and double bottoms have the following
characteristics:
• They work on every product and are easy to follow and execute.
• The number of trading signals depends on the swing size (the
smaller the swing size, the higher the number of trades includ-
ing transaction costs such as commission and slippage).
• There are many losing trades with small swing size.
• The prof it/ loss ratio is much better with bigger swing sizes.
• Products with large swings and high volatility are highly
prof itable.
Table 4.1
Trading Signals
Profit/
Loss in
#
Entry Rule
At
Exit Rule
At
Points
1
Buy long
3,727.00
Sell reverse
3,550.00
(177.00)
2 Sell 
reverse
3,500.00
Buy 
f lat
3,250.00
300.00
3
Sell short
2,700.00
Buy f lat
2,400.00
300.00
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