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

Figure 4.47
Reentry rule out of a flat position after a stop-loss.
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PHI-CHANNEL APPLICATIONS
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Figure 4.48 shows 12 relevant trading signals in the S&P 500
Index for the period from July 2001 to November 2002.
When there is no peak or valley after the entry, we have to work
with a big stop-loss, as seen after the long entry EL8 in Figure 4.48.
On the other hand, big trend movements are caught as well. When
using this trading approach, we recommend starting with only a mod-
erate leverage.
The main reason we show a Fibonacci-related trading approach
based on PHI-channels is that later in the book we work with a simi-
lar concept when dealing with PHI-ellipses.
To limit the number of lines in the chart in Figure 4.48, we show
only the baselines of the PHI-channels for each 3-wave price move and
omit the outside lines parallel to the respective baselines.
Figure 4.48
S&P 500 chart from 07–01 to 11–02. Simulation of trading signals
based on PHI-channels daily (EL: entry long, ES: entry short, XL: exit long, XS:
exit short, S-L: stop-loss).
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APPLICATIONS OF TRADING STRATEGIES
Table 4.12 summarizes the profits and losses on the sample trades.
PHI-channels can serve as trend lines and resistance lines de-
pending on whether we work with peak-to-valley formations (counter-
trend lines) or valley-to-peak formations (trend lines) in an uptrend
(vice versa in a downtrend). The S&P 500 Index chart is an example
of perfect symmetry in market action, which can only be captured by
working with the Fibonacci summation series and the ratios from the
PHI series. In Chapter 5, we present more Fibonacci-based market
symmetry in the discussion of PHI-ellipses as Fibonacci trading tools.
Summary
Since this book is purely educational, we limit the analysis to one prod-
uct and do not use time frames beyond the years 2001—2002. The re-
sults are convincing and leave plenty of room for creative readers to
f ine-tune and to cross-examine our example for alternative, and per-
haps even more productive, PHI-channels.
Once PHI-channel trend lines and PHI-channel resistance lines
are triggered, they are indicators of forthcoming market action. They
do not have immediate forecasting value, but they can be important
support or resistance levels for market trends. The S&P 500 Index