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

FIBONACCI PRICE CORRECTIONS
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target, trailing stop, and stop-loss rule, nine sample trading signals
can be generated for the S&P 500 Index from January to Novem-
ber 2000.
Figure 4.13 shows the relevant entry and exit points for the trad-
ing simulation in the S&P 500 Index. It consists of nine entry signals,
prof it targets, and trailing stops. A stop-loss exit applies only once on
the very first trade. The strategy looks quite impressive; the year 2000
was favorable for trading corrections.
Table 4.3 shows the breakdown of the different signals for a
strategy that relies on corrections. The table consists of the nine
trading signals in the S&P 500 Index with the respective high and
Figure 4.13
S&P 500 chart from 01–00 to 11–00. Simulation of trading signals
based on corrections daily (EL: entry long, ES: entry short, XL: exit long, SX: exit
short, S-L: stop-loss, PT: profit target, TS: trailing stop).
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APPLICATIONS OF TRADING STRATEGIES
low references from the chart, entry rules, exit rules, and prof it or
loss per position.
To illustrate the application of price corrections with a second
data sample, we conducted a similar simulation of trading signals on
the Japanese Yen cash currency. The basic underlying parameters for
this analysis are:
• Minimum swing size of 1.80 JPY (a sample move from 110.00 to
111.80).
• Retracement of at least 61.8 percent.
• Entry rule at previous 1-day high or low, no reentry.
• Prof it target at 0.618 times the size of the impulse swing; trail-
ing stop set to 4-day low on buys and 4-day highs on sells.
The application of these parameters to the daily bar chart of the
Japanese Yen cash currency results in a set of sample signals com-
parable to the ones in the S&P 500 Index. By similarly analyzing the
Japanese Yen cash currency, we can prove that the strong gains in
the S&P 500 Index were not accidental (Figure 4.14).