Fibonacci Retracement 618 Percent and Candlestick Patterns

Seven sample trading signals can be found in the S&P 500 Index, again between December 2001 and April 2002 (see Figure 6.2).

Fibonacci Retracement Patterns
Figure 6.2 S&P 500 chart from 12-01 to 04-02. Simulation of trading signals based on plain price corrections daily in combination with candlesticks (EL: entry long, ES: entry short, XL: exit long, XS: exit short, S-L: stop-loss, TS: trailing stop).

The trading signals in Figure 6.2, as combinations of Fibonacci price corrections and candlestick chart patterns, are based on a simple set of parameters:

• Swing size of 30 basis points.

• Entry rule based on candlestick chart patterns after the Fibonacci correction level 61.8 percent is reached.

• Stop-loss point at previous swing high or low.

• Daily data; slippage and commission excluded.

The profits and losses for corrections and candlesticks in combination look a bit more promising compared with the results of Fibonacci price corrections as a stand-alone strategy. All seven trades are shown in Table 6.2.

Table 6.2 Trading Signals (HA: Harami Pattern, EN: Engulfing Pattern, DC: Dark Cloud Cover, BH1: Bullish Belt-Hold, BH2: Bearish Belt-Hold, PP: Piercing Pattern, ES: Evening Star)

#

Entry Rule

At

Exit Rule

Points

1

Sell short HA

1,138.00

Stop-loss

1,152.00

(14.00)

2

Buy long EN

1,137.00

Stop-loss

1,115.00

(22.00)

3

Sell short DC

1,118.00

Buy reverse

1,098.00

19.00

4

Buy reverse BH1

1,098.00

Sell reverse

1,098.00

0.00

5

Sell reverse BH2

1,098.00

Buy reverse

1,101.00

(3.00)

6

Buy reverse PP

1,101.00

Trailing stop

1,157.00

56.00

7

Sell short ES

1,109.00

Open

The main reason for the improved outcome of the simulation is the change in the entry rule from entering the market immediately on reaching the Fibonacci correction target to waiting for a candlestick pattern that confirms the trend direction.

The number of stop-losses is reduced and the total number of trades is down from nine to seven.

Another way of merging pattern recognition into price corrections as Fibonacci trading tools is to combine the 61.8 percent retracement level with 3-point chart patterns.

0 0

Post a comment