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

Figure 4.14
Japanese Yen 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
The peak-valley references, as well as the prof its and losses for
the signals in the Japanese Yen cash currency against the U.S. Dollar,
are summarized trade by trade in Table 4.4.
The results in the S&P 500 Index and the Japanese Yen cash cur-
rency are very promising. However, it is a serious mistake to over-
estimate the strong gains accumulated with the prof itable strategy of
combining corrections with parameters for swing size, entry rule,
stop-loss rule, and prof it target. During this sample’s limited time
span of 11 months, market conditions happened to favor the strategy
of investing into corrective waves in the index futures and cash cur-
rency markets.
Extended Example
The problem with every test run is the time period tested. To
show a product of the most recent 12 months, we have selected the DJ
EuroStoxx 50 Index from August 2001 to August 2002.
The one-year period from mid-2001 to mid-2002 is interesting
because it includes uptrends, downtrends, and sideways market pat-
terns. The more we trace upmoves and downmoves mixed with side-
ways periods, the more reliable our trading strategy will become if the
results of a simulation prove prof itable.
Table 4.4
Trading Signals
High#/
Profit/
Low#
Loss in
Reference
Entry Rule
At
Exit Rule
At 
Points
L#2/ H#3
Entry buy
105.90
Stop-loss
104.65
(1.25)
H#3/ L#4 Entry 
sell
104.79
Stop-loss
105.76
(0.97)
L#4/ H#5 Entry 
buy
104.94
Trailing stop
107.71
2.77
L#8/ H#9
Entry buy
109.04
Reverse sell
109.05
0.01
H#9/ L#10
Reverse sell
109.05
Trailing stop
107.91
1.14
H#11/ L#12
Entry sell
107.67
Reverse buy
105.63
2.04
L#16/ H#17
Reverse buy
105.63
Trailing stop
108.55
2.92
H#19/ L#20
Entry sell
108.91
Prof it target
106.15
2.76
H#23/ L#24
Entry sell
108.25
Trailing stop
108.82
(0.57)
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