Trading with Charts for Absolute Return

THE RATIONALE BEHIND PHI-ELLIPSES AS TRADING TOOLS

Applying PHI-ellipses to charts is easy if one understands the rationale behind this graphical trading tool. PHI-ellipses must be understood in the dimensions of time and rhythm.

PHI-ellipses develop over time. The magic of the PHI-ellipse is that the perfect form exists inherently from the beginning of a price movement, but traders recognize PHI-ellipses only at their very end.

Although all PHI-ellipses share a common price structure, their final form can vary, becoming thick and thin, long or short. Normally the smaller trends are seen. But most fascinating is to see that the smaller trends are already part of a bigger trend scheme. In other words, PHI-ellipses are already at the beginning of a larger picture that months later shows its final form.

Figure 5.15 illustrates this principle.

FIGURE 5.15 Long-Term PHI-Ellipse Circumventing Shorter-Term PHI-Ellipses

Source: Robert Fischer and Jens Fischer, The New Fibonacci Trader, John Wiley & Sons (2001), p. 146.

The slope of a PHI-ellipse can differ with each new PHI-ellipse drawn, as shown in Figure 5.16.

FIGURE 5.16 Slope of PHI-Ellipses Upward in Relation to Correction Levels

Source: Robert Fischer and Jens Fischer, Candlesticks, Fibonacci, and Chart Pattern Trading Tools, John Wiley & Sons (2003), p. 132.

The slope of a PHI-ellipse can be small, as expected in sideways markets. ...