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

Figure 5.10
Basic scheme of investment by using PHI-ellipses.
Figure 5.11
4-day lowest low entry rule.
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BASIC FEATURES AND PARAMETERS OF PHI-ELLIPSES
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with a stop-loss set to the lowest low of a price bar within the previ-
ous PHI-ellipse.
Figure 5.12 illustrates a stop-loss protection on a short position.
For an alternative entry point, we may consider the trend channel
that touches the relevant PHI-ellipse on either side (see Figure 5.13).
By choosing the conservative option of a double conf irmation by
PHI-ellipse and trend channel, we accept that we may sacrif ice some
of the prof it potential that could have been realized with a more sen-
sitive entry rule. On the other hand, we may avoid a number of losing
trades in strong trending market conditions by staying in the trend
channel as long as it lasts.
Figure 5.12
Stop-loss protection on a short position.
Figure 5.13
Short entry on a combination of PHI-ellipse and trend channel.
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128
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PHI-ELLIPSES
If the market price leaves the PHI-ellipse at the very end and im-
mediately rises to new highs, we get a buy signal at the level of the
highest high made within the PHI-ellipse. Figure 5.14 illustrates our
strategy for dealing with runaway markets. For sell signals, the cor-
rect entry point runs vice versa.
The stop-loss or stop-reverse level on this buy signal is set to the
lowest low of the previous three days, starting on the day when the mar-
ket price reached the end of the PHI-ellipse (see Figure 5.15). On sell
signals on runaway markets, the stop-loss or stop-reverse level is the
opposite; it is set to the highest high of the last three trading days in-
side the PHI-ellipse.
If a market position is established and the market price moves
in the anticipated direction, the investor must decide when to take
prof its. Several options are available to the investor: trailing stop
exits, prof it target exits, exits on extensions, time exits based on the
Fibonacci summation series, and exits on the end of a PHI-ellipse.