Trading with Charts for Absolute Return

EXPLOITING THE FORECASTING CAPABILITIES OF PHI-ELLIPSES

Up to now, PHI-ellipses have been regarded as trading tools that are always invested either long or short. The section on the application of PHI-ellipses for time analysis explained how to use PHI-ellipses as timing indicators to go beyond the price dimension. In addition, there is one more way to consider PHI-ellipses in order to predict price changes with a remarkable accuracy.

So far in this chapter, PHI-ellipses that circumvent price data have been chosen. The following section will consider only the inside line (i.e., the right side) of the PHI-ellipse and will not care about the median line or the outside line. This is a completely different approach that readers may find interesting as a supplement to everything presented thus far.

Whenever the inside line (or the right side) of a PHI-ellipse is touched by five peaks in a downtrend or five valleys in an uptrend, a major trend change is on its way. Why the number 5 again? It is not only a number from the Fibonacci summation series, but, furthermore, an indication of the end of a long downtrend or uptrend.

However, patterns with five peaks or valleys lined up do not occur often, meaning that investors may have to wait for month for a respective pattern to build on a chart. To give readers a better understanding of PHI-ellipses with five peaks or valleys lined up, five sample charts have been prepared, one for each of the five assets analyzed on trend channels and trend ...