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

Figure 6.35
Intel chart from 12–00 to 11–02. Sample trade.
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CANDLESTICKS, CHART PATTERNS, AND FIBONACCI TOOLS
median line, and one valley on the lower border. Once the valley on
the lower border is broken, we get a sell signal. The stop-loss is placed
at the peak before the sell signal. The prof it target is calculated by
doubling the width of the PHI-ellipse.
The last of the four short signals is based on two peaks on the
upper border, two valleys on the lower border, and a single peak touch-
ing the median line of the PHI-ellipse. We get a sell signal on a break-
out of the lowest valley. The stop-loss point is at the peak before the
sell signal. In this case, the prof it target is not reached. The stop-loss
is not triggered, either, so the position is reversed as soon as the only
long signal in our Intel example shows up.
The long sample entry is based on a PHI-ellipse with a steep
slope to the upside. As explained in Chapter 5, we can get a buy sig-
nal on a breakout of the PHI-ellipse to the upside if we use an entry
rule saying that we buy at the high of the day at which market pric-
ing breaks out of the PHI-ellipse.
As our selected examples have made clear, horizontal PHI-
ellipses are ideal tools for short-term investments in the direction of
the main trend on a daily basis. Moreover, horizontal PHI-ellipses are
also the link between daily chart analysis and intraday analysis.
SUMMARY
In this chapter, we combined the three concepts of candlestick charting,
Fibonacci trading tools, and 3-point chart patterns. While each concept
by itself is very interesting for a trader to work with, we were able to
show by combining them that the number of trading signals is reduced
and at the same time chances of prof itable trades are increased.
The biggest problem while working with the PHI-ellipse by itself
is to determine its f inal point. We can draw a PHI-ellipse when we
have three points, the starting point and two side points. While we al-
ways need to have a 3-wave price move to draw the PHI-ellipse, the
second impulse wave in a 3-swing price pattern has to be at least as
long as the first impulse wave. Once we can draw the first PHI-ellipse,
it will very rarely have its f inal form already, for it will dynamically
adjust to the price pattern in the future. It can be longer or shorter,
thicker or thinner.
In order to identify the f inal form of the PHI-ellipse and with it
the entry price of a new position, we can combine the PHI-ellipse with,
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