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

Figure 6.30
S&P 500 chart from 05–02 to 11–02. Sample trade.
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PHI-ELLIPSES
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We conduct the analysis according to the following parameters:
• A candlestick engulf ing pattern conf irms the trend change after
the breakout of the PHI-ellipse.
• A 2-day high breakout after the double bottom formation con-
f irms the trend reversal additionally.
• The f irst prof it target is at the resistance line at 875.00. The sec-
ond profit target is marked by the resistance line at 925.00. After
the breakout of the trading range between 875.00 and 925.00,
doubling the size of the trading range leads to a third prof it tar-
get at 976.00.
• The stop-loss point is at the valley before the buy signal.
Figure 6.31 provides us with a third trading example, this time on
the Japanese Yen cash currency between March and November 2002.
Figure 6.31
Japanese Yen chart from 03–02 to 11–02. Sample trade.
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212
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CANDLESTICKS, CHART PATTERNS, AND FIBONACCI TOOLS
The buy signal stems from a breakout out of a symmetrical tri-
angle, which is also the beginning of wave 3 (the second impulse wave)
of the market move. While the market moves higher, the sell signal is
based on the following rules:
• Point 3 (in Figure 6.31) marks the final point of the PHI-ellipse.
The market trend stops at the resistance line. A symmetrical
triangle is formed that has its apex almost at the high of the
PHI-ellipse.
• We sell short when the support line of the symmetrical triangle
and the outside line of the PHI-ellipse are broken. The profit tar-
get is at 50 percent of the swing size from point 0 to point 3.
• The stop-loss is placed at the peak before the sell signal.
Finally, the Deutsche Telekom stock provides a striking chart
example of trading tools in combination (see Figure 6.32).