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

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Figure 5.1
Generation of PHI-ellipses using different ratios from the PHI series.
From top left to bottom right: ratio 1,000 (circle); ratio 1.618; ratio 4.236; ratio
6.854; ratio 11.090; ratio 17.944.
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BASIC FEATURES AND PARAMETERS OF PHI-ELLIPSES
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for Fischer-transformed PHI-ellipses, the length of the major axis re-
mains unchanged. The minor axis thereby gets shorter and shorter.
The resulting PHI-ellipses become narrower and narrower and finally
perfectly enclose the entire price move.
It is evident from the sample charts that because ellipses 
have such special structures, they can only be used on computers
and with particular software packages. Fischer-transformed PHI-
ellipses, moreover, are unavailable elsewhere and can only be gener-
ated by running the WINPHI graphics software that accompanies
this book.
PHI-ellipses are interesting graphical trading tools because
their very structure is founded on a 3-wave pattern, as shown in
Figure 5.2.
Once we have identif ied the three points A, B, and C in the ide-
alized 3-wave swing, we can position the PHI-ellipse around these
three points. Wave 1 from A to B is an impulse wave. Wave 2 from B
to C is the corrective wave to the impulse wave. For wave 3, we expect
a second impulse wave in the direction of the f irst impulse wave.
The fundamental structure of the PHI-ellipse provides another
way to analyze price moves. Because it is dynamic over time and fol-
lows price patterns as they develop, we must be patient and wait—
from the very beginning to the very end—until a price move stays
within the PHI-ellipse. As soon as the market price moves out of the