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

Figure 5.6
Overlapping PHI-ellipses.
Figure 5.7
Profit potential based on the slope of PHI-ellipses.
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PHI-ELLIPSES
The slope of a PHI-ellipse often is small, as can be expected in
sideways markets. In these cases, the beginning of a new PHI-ellipse
and the end of an old PHI-ellipse are likely to overlap, as can be seen
in Figure 5.6.
Monitoring the slope of a PHI-ellipse is important. Like the
countertrend moves at the end of extensions (see Chapter 4), retrace-
ments of 38.2 percent or 61.8 percent at the points of major trend
changes in the markets should go back in the direction of the initial
impulse wave. The steeper a PHI-ellipse develops, the larger the dis-
tance becomes from wave 1 to the f inal point of the PHI-ellipse. The
greater the distance becomes from wave 1 to the final point of the PHI-
ellipse, the larger the prof it potential in points on 38.2 percent or 61.8
percent retracements to this distance.
In addition to circumventing chart patterns in an actual or short-
term trend, PHI-ellipses may also circumvent the bigger picture from
a long-term perspective. This might include a couple of smaller trend
changes (see Figure 5.8).
Investors who use PHI-ellipses must monitor price moves con-
sistently. This is a minor problem on weekly and daily data, but on
intraday data, there is a lot of pressure to identify and to wait for the
end of a PHI-ellipse. Therefore, PHI-ellipses on an intraday basis have
to be handled with care and can only be recommended for experienced
Fibonacci traders.
Figure 5.8
Long-term PHI-ellipse circumventing short-term PHI-ellipses.
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