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

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PHI-ELLIPSES
be able to correctly draw PHI02 to generate a trading signal (see Fig-
ure 5.26).
In addition to noting the shape of PHI02, it is important to mea-
sure the underlying 5-wave swing based on extensions of wave 1 and
also wave 3. The amplitude of wave 1, multiplied by the ratio 1.618,
and the amplitude of wave 3, multiplied by the ratio 0.618, both point
closely to valley F, which then marks the f inal point of PHI02 (read-
ers who get confused here, please review the Chapter 3 discussion of
extensions in 5-wave patterns).
The day of the lowest low is day 32 (counted from the high of the
f irst impulse wave of the price move at point A), which is too close to
the Fibonacci count of 34 to ignore.
The turning point in the Japanese Yen cash currency market just
below 104.00 JPY is confirmed through four methods: (1) Elliott 5-wave
count, (2) the ratio 1.618 on wave 1, (3) the ratio 0.618 on wave 3, and
(4) PHI-ellipse PHI02. Here, aggressive investors f ind four good rea-
sons to buy U.S. Dollars and sell Japanese Yen immediately at a level
of 104.00. Somewhat conservative investors, however, should wait to
Figure 5.26
Japanese Yen chart from 04–00 to 11–00. PHI-ellipse PHI02.
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WORKING WITH PHI-ELLIPSES ON DAILY DATA
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get the f inal conf irmation at the point where the market price moves
out of the sideline of PHI02.
The second approach leads to the following trading outcome:
• Entry on a breakout of a previous 4-day high after PHI02 is left
by the price move.
• Stop-loss protection set to the valley at point F, which is the low-
est low inside PHI02.
• 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.
As mentioned, a minimum width is necessary to work properly
with PHI-ellipses as trading tools. The smaller PHI-ellipses become,
the higher the ratios from the PHI series must be to draw PHI-ellipses
around price moves.
PHI03 is a typical example of a very narrow PHI-ellipse (see Fig-
ure 5.27).