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

Figure 5.39
Stop-loss rule on a short position.
Figure 5.40
Profit target rule on a short position based on the initial width of
the PHI-ellipse.
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PHI-ELLIPSES
The advantage of this strategy is that the prof it target will al-
ways be dynamically adjusted to the volatility of the market swings by
the time the signals are generated.
PHI-Ellipses and Symmetry in Price Patterns
Market price patterns develop based on investor behavior. It is a gen-
eral belief that investor behavior is an irrational parameter that can-
not be analyzed.
We have a different opinion. Certain price patterns in each price
move are very repetitive and can be used for the analysis if the trader
is patient enough to wait for them. The PHI-ellipse can identify those
symmetrical price patterns to use as trading information.
In Figure 5.41, we present a pair of examples of symmetrical
price patterns on the Dax 30 Index. In both examples, the low point of
the price pattern within the PHI-ellipse is located almost in the mid-
dle between the peaks on the right and left side. The PHI-ellipse runs
almost horizontal.
It is essential for the two peaks to touch the outside line of the
PHI-ellipse, for otherwise the PHI-ellipse would not have a stable
form. Creating the charts is possible only because PHI-ellipses can be
dynamically adjusted to different market price patterns. The quality
of the PHI-ellipse is based on its capability for change according to
Figure 5.41
Symmetry in price patterns.
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WORKING WITH PHI-ELLIPSES ON INTRADAY DATA