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

Figure 5.25
Japanese Yen chart from 04–00 to 11–00. PHI-ellipse PHI01.
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WORKING WITH PHI-ELLIPSES ON DAILY DATA
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wave has to go lower than point B. The price move does not go lower
than point B after reaching C. Instead, it makes a higher high than C,
changing the side point from C to C1. This may happen at any time
when we work with PHI-ellipses.
From C1, the price move goes quickly to point D. However, at val-
ley D, we do not know whether this is the low to watch; for even though
we can draw the PHI-ellipse through point D in its final form, we have
to wait for the market price to go outside the PHI-ellipse at point F.
Our Fibonacci count can be used as an additional indicator to de-
termine whether point D is actually a signif icant low point. Valley D
occurs one day after number 21 of the Fibonacci summation series
(the count beginning once starting point A has been reached). The
number 21 is a very important Fibonacci count that is always worth
checking.
At point F, where the market price move leaves PHI-ellipse
PHI01, a trading signal is generated and executed based on the fol-
lowing three parameters:
1. Entry market as soon as the border of PHI01 is broken. No fur-
ther entry rules apply because the entry level is already far above
the previous 4-day high.
2. Stop-loss protection set to the valley at point D, which is the low-
est low inside PHI01.
3. Trailing stop to protect prof its, def ined as a breakout of a previ-
ous 4-day low. The trailing stop formation is triggered at point G.
The simple PHI-ellipse PHI01 is a convincing example of how
successful signals can be derived straight from the core application of
this trading tool. From this basic example, we can proceed to much
more complex formations that are also subject to analysis on the basis
of PHI-ellipses.
PHI02 has a much thinner and longer form than PHI01 because
the price pattern is not a 3-wave move, but a 5-wave move. The f irst
swing A to B and back to C is established quickly, but a PHI-ellipse
drawn around these swings has no stability. After the following
waves to the valley at point D and the peak at point E have estab-
lished side points determining the final shape of PHI02, we will then
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