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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Simultaneously analyzing the same product on weekly and on
daily data often benef its the outcome of the analysis. For example,
recognizing a PHI-ellipse with a strong uptrend from weekly data will
help to identify the correct trading signals in daily data. Figure 5.9 il-
lustrates the latter notion.
To identify the best average PHI-ellipse for any given product re-
quires a software package like our WINPHI program, which allows
investors to draw any PHI-ellipse desired on sets of historical data
and on a constant price scale.
Once traders have identif ied the PHI-ellipse for any particular
product, they can apply it to real-time trading. Identifying specif ic
PHI-ellipses is like pattern recognition in the markets. Pattern recog-
nition has an advantage, however, because stable price patterns de-
tected on historical price moves have a chance of repeating and can
become trading indicators for the future.
Entry Rules and Exit Rules
The basic strategy for trading the markets using PHI-ellipses is,
f irst, to wait for a price move to develop inside the borders of a PHI-
ellipse; and, second, to act counter to the main trend direction as
soon as the end of the PHI-ellipse has been reached and market pric-
ing leaves the PHI-ellipse.
Figure 5.9
Simultaneous analysis on weekly and daily PHI-ellipses.
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PHI-ELLIPSES
Catching the rhythm of market moves by attaching PHI-ellipses
and adding countertrend trades to each other is illustrated in
Figure 5.10.
We recommend selling at the end of a PHI-ellipse when it has an
upward slope and buying at the end of a PHI-ellipse when it has a
downward slope.
An entry rule conf irms trend reversals to the upside or to the
downside at the end of a PHI-ellipse. The rule is set to the lowest low
of the previous one, two, three, or four days for sell signals, and the
highest high of the previous one, two, three, or four days for buy sig-
nals (see Figure 5.11). The choice of entry rule depends on the in-
vestor’s risk preference and time frame for entry.
As soon as we are invested on a short position, we def ine a stop
or a stop-reverse point at the highest high of a price bar within the
previous PHI-ellipse. If we are invested long, we protect our position