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

Figure 6.32
Deutsche Telekom chart from 10–01 to 11–02. Sample trade.
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PHI-ELLIPSES
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The most interesting trading signal on the Deutsche Telekom
chart is the fourth one, the long entry EL4. The buy signal is based on
a clear set of rules:
• A perfect PHI-ellipse can be drawn circumventing the market
move from points B to D.
• We f ind a double bottom formation at point D (the second bot-
tom is located at point A).
• Point D is also the head of an (inverted) head and shoulder
formation.
• We enter the market long on a breakout of the outside line of the
PHI-ellipse, which at the same time is a breakout of the peak be-
tween the head and the right shoulder of the head and shoulder
chart formation.
• The prof it target is triggered at the resistance line, which is de-
f ined as the parallel line to the support line running from point
A to point D.
• The stop-loss is placed at the most recent valley before the long
market entry.
The countertrend trading signals based on PHI-ellipses in vari-
ous combinations with candlestick patterns and /or regular chart pat-
terns have come out perfectly.
It is just a small step to turn the approach upside down and an-
alyze market entries at the final points of PHI-ellipses in the direction
of the main trend.
PHI-Ellipses in the Main Trend Direction
At least as important as countertrend PHI-ellipses are those PHI-
ellipses that can be traded in the direction of the main trend.
All PHI-ellipses that trade with the direction of the trend have
an almost horizontal position. Sideward patterns are often diff icult
to detect, and these horizontal PHI-ellipses are valuable because they
make such patterns visible.
The goal in trading horizontal PHI-ellipses is to participate in
small price swings with a high number of profitable trades at controlled
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