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

PHI-ELLIPSES
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swing sizes and work for entry and exit signals as well—if the trader
has the discipline to follow the trading rules.
There are two ways to work with prof it targets. The f irst way is
to generate an entry signal when the market price breaks out of a
trading range, such as a rectangle; the prof it target is then twice the
height of the rectangle. The second way is to generate the entry sig-
nal out of a trend line such as a symmetrical, ascending, or descend-
ing triangle. If the entry signal is close to the support line, the prof it
target is the resistance line, and vice versa.
As shown in the examples, getting to the f irst prof it target can
happen very quickly. Traders must decide whether to take the small,
fast prof its or stay longer in a trade and wait for the second prof it tar-
get line. In strong bull or bear markets, staying longer in a trend
makes a lot of sense. However, in sideward markets, taking prof its a
little earlier is the better strategy. Traders must determine what sort
of market condition they are trading in and adjust their prof it-taking
strategy accordingly.
PHI-ELLIPSES
Several ellipses are available on different charting tools. 
We call our
trading tool the PHI-ellipse because it is a transformation of the orig-
inal formula of the ellipse used in geometry.
The PHI-ellipse is ideally suited for trading because it incorpo-
rates different Fibonacci ratios and changes its form dynamically—big-
ger, smaller, thinner, or thicker—based on these ratios. 
The PHI-ellipse
is protected by a trademark and cannot legally be copied.
PHI-Ellipses on Daily Data
As described in detail in Chapter 5, the basic structure of PHI-ellipses
is always the same, even though they can be thinner or thicker, shorter
or longer depending on the market situation. The strength of PHI-
ellipses is that they can be dynamically adjusted to any price move, as
long as the required peaks or valleys are available.
There are two ways to work with PHI-ellipses. The f irst way is to
analyze a trending market. If the market is going down, we are look-
ing for a buy signal. If the market is going up, we try to f ind a sell
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