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

PHI-ELLIPSES
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the S&P 500 Index between May 2002 and November 2002 (see Fig-
ure 6.29).
After the f irst impulse wave from point 0 to point 1 and the cor-
rection from point 1 to point 2 are finished, we can draw a PHI-ellipse
as soon as the market price in wave 3 (the second impulse wave) goes
higher than point 1. The PHI-ellipse has its starting point at 0 and its
two side points at 1 and 2.
While the market price moves higher, we try to f ind the f inal
point of the PHI-ellipse. The f irst sign that the price move is slow-
ing down becomes obvious when the market price moves out of the
PHI-ellipse.
The sell signal can be analyzed as follows:
• The market price moves out of the PHI-ellipse.
• A wedge chart pattern conf irms the end of the market trend.
Figure 6.29
S&P 500 chart from 05–02 to 11–02. Sample trade.
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CANDLESTICKS, CHART PATTERNS, AND FIBONACCI TOOLS
• A candlestick engulf ing pattern conf irms the sell signal when
the market price breaks out of the support line of the wedge
formation.
• The prof it target is set to 50 percent of the total swing from the
starting point 0 of the PHI-ellipse to the highest high of the mar-
ket movement.
• The stop-loss is placed at the peak before the short entry.
The strong price movement to the downside leads to a solid prof it
on the position. A buy signal in the S&P 500 Index shows up just two
months later (see Figure 6.30).
We start the PHI-ellipse at point 0. The two side points of the
PHI-ellipse are at valley 1 and peak 2. Our primary goal is to def ine
a market entry long once the f inal point of the PHI-ellipse is reached
and the market moves out of the PHI-ellipse.