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

Figure 5.27
Japanese Yen chart from 04–00 to 11–00. PHI-ellipse PHI03.
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PHI-ELLIPSES
Analyzing the 3-wave move from A to B back to C shown in Fig-
ure 5.27, we find that it takes only 5 days to complete the entire swing
before the market price accelerates sharply above the significant peak
at point B of the swing.
Although PHI03 can be drawn after the side points D and E have
been established, we do not invest in such PHI-ellipses because the
width is too narrow. PHI03 is drawn at a ratio 46.979 from the PHI se-
ries. This ratio is far beyond the limit of a ratio 17.944, which is the
highest ratio from the PHI series that is appropriate for an application
to PHI-ellipses (see Figure 5.1 for a recap).
The same holds true for PHI04, which is drawn at ratio 29.034 from
the PHI series (PHI04 is part of the overall picture in Figure 5.24).
The f irst four examples were selected to introduce trading deci-
sions based on PHI-ellipses. PHI05 shows that making trading decisions
is sometimes diff icult because various options exist on the entry side as
well as on the exit side (see Figure 5.28).
Figure 5.28
Japanese Yen chart from 04–00 to 11–00. PHI-ellipse PHI05 (in
combination with the narrow PHI-ellipse PHI04 for the exit rule).
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WORKING WITH PHI-ELLIPSES ON DAILY DATA
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PHI05 begins with a strong f irst wave from starting point A to
point B. Point B is part of the a, b, c correction in the second wave and
does not touch the outside line of the PHI-ellipse. Point C becomes the
second side point of PHI05 as soon as the market price moves lower
than point B. The third wave of the price move goes very quickly from
point C to D. Point D is the end of the price move. Market pricing re-
verses at point D for two possible reasons:
1. Point D does not go lower than the bottom of the PHI-ellipse.
2. Point D is almost exactly the price target of the extension calcu-
lated from impulse wave 1, which goes from point A to point B.
Even though point D is conf irmed by multiple Fibonacci tools,
before we can invest, we need a conf irmation of a trend reversal. Two
options exist for a buy signal.
The f irst option has the following parameters:
• No waiting for PHI05 to be broken to the right side and entry to
the market on a breakout of a previous 4-day high. This entry
rule is f illed at point F in Figure 5.28.
• Stop-loss protection set to the valley at point D.
• Trailing stop to protect prof its def ined as a breakout of a previ-
ous 4-day low. The trailing stop formation is triggered at point G.
The second of the two options for entering the Japanese Yen cash
currency market long works with a different set of parameters:
• Initial buy when the sideline of PHI05 is broken at point L, which
is also higher than the previous 4-day high.
• Stop-loss protection set to the swing low at point H.
• Trailing stop to protect prof its def ined as a breakout of a previ-
ous 4-day low. The trailing stop formation is triggered at point J.
Using the second option, we can close out the position by com-
bining PHI05 with PHI04, which is the one we do not consider on the
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