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

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PHI-ELLIPSES
far away. But in general, V-turns after an entry are rare. In all of our
sample signals, reasonable peaks or valleys are formed by the price
action after the entry, thus reducing the original stop-loss risk sub-
stantially. On the other hand, the trading approach catches major mar-
ket trends as well.
However, when running this concept as a trading approach, it is
best not to start with too much leverage.
PHI-ELLIPSES ON CONSTANT SCALES
The PHI-ellipses work equally well on daily, weekly, and monthly
charts.
Hourly charts are interesting for analysis on intraday data, for
they show a very short-term picture. The problem with intraday charts
is that entry rules, prof it targets, and stop-loss rules may leave in-
vestors with small prof it potentials. On the other hand, the overall
risk (per trade) also is limited.
The risk level is one of the reasons we enjoy working with cash
currencies on a daily basis: Cash currencies trade 24 hours a day
without gap openings and other inconveniences that may dilute the
performance prof ile.
Long-term historical test runs are necessary to judge the qual-
ity of PHI-ellipses for products to be traded. A feature for plotting his-
torical data to charts with a constant price scale has been integrated
into the WINPHI software. Two or three years of daily O–H–L–C data
are impossible to plot to the width of one screen, and when scrolling
the screen, the price scale usually varies according to the highest high
and the lowest low of the data. The WINPHI constant scale feature is
a key element, because scaling to screen height would otherwise dis-
tort the angles of PHI-ellipses applied to market moves.
PHI-Ellipses on Constant Scales in the Japanese Yen
Cash Currency
We have analyzed more than two years of the Japanese Yen cash cur-
rency daily bar data, from September 1998 to December 2000, and
have backtested the PHI-ellipses.
The total stream of data over 27 months is divided into two
charts. By choosing a set of appropriate PHI-ellipses and waiting for
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