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

SUMMARY
•
219
for example, a PHI-channel line, which is the outside line parallel to the
median line of the PHI-ellipse. We can also combine the PHI-ellipse
with candlesticks or 3-point chart patterns. We can also anticipate
the f inal point of the PHI-ellipse with support and resistance lines or
Fibonacci corrections or extensions.
We have shown on different examples practical applications of the
combination of PHI-ellipses with candlesticks and chart patterns. All
examples show that by means of combining the trading tools, entry and
exit points can be better def ined. In addition, prof it targets and stop-
loss points can be better determined. We have presented a selection of
stocks, stock index futures, and cash currencies to demonstrate that al-
most any product can be analyzed based on a combination of these
trading tools. It does not make any difference whether we look for long
or short signals on weekly, daily, or intraday charts.
Working with combinations of candlesticks, Fibonacci trading
tools, and 3-point chart patterns means that we are most of the time
not invested. We have to wait for patterns to develop and may enter the
markets according to the signals generated by the analysis as soon as
the setup is completed. Once we have a signal, we can precalculate the
prof it target and the stop-loss right away using the same trading tools.
Following this approach, the percentage of prof itable trades is very
high at limited risk. An estimate of the percentage of prof itable trades
in chart patterns can be identif ied by looking at the score board shown
in Table 4.10. The biggest problem for a trader is having the discipline
and the patience to wait for the combination of the three trading con-
cepts to develop and then not hesitating to act once a signal shows up.
The combination of the three trading concepts can be used to
generate counter-trend signals to buy long at the bottom or sell short
at the top of the PHI-ellipse. In these cases, the PHI-ellipse has either
a slope upwards or downwards. The other option is to work with hori-
zontal PHI-ellipse to analyze a sidewards market. In this case, we are
trading with the trend direction. We buy when the market price pen-
etrates the outside line of the PHI-ellipse on the upside and we sell
short, when the market price breaks out of the downside. To f ine-tune
the entry signals, entry signals based on the PHI-ellipse can be com-
bined with candlesticks or 3-point chart patterns.
What makes the horizontal PHI-ellipse so interesting for the
analysis of sideward patterns is that it can adjust dynamically to dif-
ferent market patterns. Whenever a PHI-ellipse is locked in—meaning
the upside and downside of the PHI-ellipse are determined by different
c06.qxd 6/16/03 4:11 PM Page 219

---