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

BASIC FEATURES AND PARAMETERS OF PHI-ELLIPSES
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PHI-ellipses may follow one after the other symmetrically. Small PHI-
ellipses may be followed by long PHI-ellipses, or PHI-ellipses may be
connected with each other, and so on. The challenge is to correctly in-
terpret price moves and select PHI-ellipses accordingly. Once investors
learn how to identify the appropriate market pattern, working with
PHI-ellipses becomes easier.
The remainder of this section is divided into two parts. We f irst
examine the shape and the slope of PHI-ellipses, and include ap-
proaches for attaching and overlapping PHI-ellipses. In the second
part, we address entry and exit rules for the generation of trading
strategies from PHI-ellipses.
Typical Features of PHI-Ellipses
Dealing with chart patterns depends a lot on the def inition of swings
just as it depends on controlling impulse waves and corrections with-
out losing sight of the main trend picture.
The strength of PHI-ellipses, in this respect, is that no matter
how many waves or subwaves are in a price pattern, we receive a solid
overall picture of the total price pattern as long as a PHI-ellipse can
circumvent it.
Even if we reduce the analysis to a simple 3-swing pattern, an in-
def inite number of combinations of impulse waves and corrections
will be possible. Impulse waves are fairly simple to handle, whereas
dealing with corrections and long sideward periods in the markets can
be very tricky. Traders and analysts call these periods “noise” in the
markets.
PHI-ellipses are ideal geometrical trading tools for coping with
noise and analyzing price moves over time without having to focus too
much on every intermediate minor peak or valley between the start-
ing point and the ending point of the price pattern.
The best way to demonstrate the generation of PHI-ellipses is by
starting with a circle and then turning the circle into PHI-ellipses. A
circle is a special kind of PHI-ellipse because the ratio of the major
and minor axes is 1.000 from the PHI series.
Figure 5.1 shows the process of generating PHI-ellipses.
From the circle, ongoing PHI-ellipses can be drawn at alterna-
tive axis ratios 1.618, 2.618, 4.236, 6.854, 11.090, 17.944, 29.034, and
so on, from the PHI series. According to the mathematical formula
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