A SYNERGISTIC STRATEGY TO ENHANCE
PROFITS AND REDUCE RISK
Many investors are unhappy with the performance of investment advisors and funds in the past couple of years and want to make their own trading decisions, using the analytic tools and the advice they have accumulated. This book presents easy, reliable trading tools, together with the trading rules to apply them to real-time trading.
Many investment strategies have been presented in books, market letters, and other media. In this book, we describe those tools that appear to work best, and we integrate them into a manageable and understandable trading strategy. Combining different strategies correctly can improve every investor’s chances of success under different market conditions. Most importantly, we concentrate on strategies that every experienced investor can easily understand and execute with the WINPHI charting program that is provided on a at
the end of this book.
With all the sophisticated computer models that are available,
you might think that investing and making money would be getting
easier. But just the opposite has happened. At no time in history has
so much money been lost so fast, and not only the small investors have
suffered. The big investment companies also have had unimpressive
performances even though presumably they had all the necessary tools
to beat the markets. This clearly shows that crunching numbers with
a computer does not ensure success. For many years, we have concentrated on pattern recognition, a technique with proven reliability even
when computers are not available.
CONTENTS
CHAPTER 1 TRADING PSYCHOLOGY AND
INVESTOR BEHAVIOR 1
CHAPTER 2 THE MAGIC FIGURE THREE 7
CHAPTER 3 BASIC PRINCIPLES OF TRADING STRATEGIES 9
Fibonacci Analysis 9
Candlestick Analysis 24
Chart Pattern Analysis 32
Trend Lines and Trend Channels 41
CHAPTER 4 APPLICATIONS OF TRADING STRATEGIES 45
Double Tops and Double Bottoms 45
Fibonacci Price Corrections 52
Fibonacci Price Extensions 67
Candlestick Chart Patterns 77
3-Point Chart Patterns for Trend Reversals 88
PHI-Channel Applications 108
CHAPTER 5 PHI-ELLIPSES 115
Basic Features and Parameters of PHI-Ellipses 116
Working with PHI-Ellipses on Daily Data 132
PHI-Ellipses on Constant Scales 150
Working with PHI-Ellipses on Intraday Data 155
Reliability of PHI-Ellipses Reconsidered 162
ftoc.qxd 6/17/03 8:15 AM Page xi
xii • CONTENTS
CHAPTER 6 MERGING CANDLESTICKS, 3-POINT CHART
PATTERNS, AND FIBONACCI TOOLS 167
Fibonacci Price Correction Levels 168
Fibonacci Price Extensions 187
Support and Resistance Lines 195
PHI-Ellipses 207
Summary 218
SOME FINAL REMARKS 221
TUTORIAL 227
LIST OF ABBREVIATIONS 229
DISCLAIMER 231
USER MANUAL WINPHI GETTING STARTED 233
INDEX 251
TRADING PSYCHOLOGY AND INVESTOR BEHAVIOR
The market price of a stock at any exchange never represents the company’s fair value. The stock instead is trading either above or below that valuation. Over the past couple of years, the potential discrepancy between market capitalization and fair value became painfully obvious to investors. Supported by analysts’ unrealistic price forecasts, many high-tech stocks reached untenable high prices and then, in some instances, became worthless because there was no real value behind these companies.
In general, the market price fluctuates higher or lower around the fair value, depending how the market sentiment values the company.
