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

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APPLICATIONS OF TRADING STRATEGIES
Only future price movements can answer this question. To deal
with this problem, we recommend working with bigger swing sizes and
correction levels. Although we may anticipate the direction of the next
impulse wave incorrectly, our risk remains low and we can liquidate
a position with a small loss if we are on the wrong side of the trend
direction (see Figure 4.11).
Table 4.2 sums up parameters for percentage of retracement,
swing size, and entry rule.
Figure 4.11
Risk levels if a correction is already the impulse wave of a new trend.
Table 4.2
Swing Size, Correction, and Entry Rule
Entry Rule
Swing Size
Correction
Previous High–Low
in Ticks
in %
in Days
100–200
61.8
3–4
200–400 38.2
3–4
200–400
50.0
2
200–400
61.8
1
400–800 38.2
3
400–800
50.0
1
400–800
61.8
1
Source: The New Fibonacci Trader,
by Robert Fischer (New York:
Wiley, 2001), p. 59.
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FIBONACCI PRICE CORRECTIONS
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59
Every time investors choose to enter a market according to a pat-
tern of corrections to initial impulse wave, they must make sure that
the entry is realized by the time of the correction (or at least close
enough to the time of the correction). A reliable way to manage being
on time (or at least close enough for the correction) is to combine swing
size and correction level with a convincing entry rule.
Generally speaking, a strong f irst impulse wave is followed 
by a strong correction. The second impulse wave should be bigger
than the f irst impulse wave. Therefore, a more sensitive entry rule
can be used.
Different entry rules in relation to swing sizes are shown in Fig-
ure 4.12.
Many successful combinations of swing size, retracements,
and entry rules are possible. The sample constellations in Table 4.2
show the underlying general pattern and how the three parameters
go together in a productive way. There are many other workable
combinations.