Candlesticks, Fibonacci, and Chart Pattern Trading Tools
Robert Fischer and Jens Fischer · 2003 · 258 pages
A father-son team stitches three tools together: Fibonacci retracements, candlestick patterns, and simple 3-point chart formations, arguing the combination confirms turning points that no single tool catches alone. The proof they show for it is a handful of trades from one bullish year.
The one idea
The book's real claim is that Fibonacci corrections work best as a trend-following, short-term strategy: after an impulse wave up or down, wait for a retracement of 61.8 percent of that move, then enter on a breakout of the prior day's high or low. The authors settle on 61.8 percent specifically because it lets you place a tight stop (below the prior valley or above the prior peak) without giving up much of the move, and because entering at a shallower 38.2 percent retracement risks jumping in before the correction is over.
Around that core, the book layers three supporting tools. Candlestick patterns flag reversal shapes at the point of entry. 3-point chart patterns (double tops, double bottoms, triangles) give a second confirmation of the same turning point. PHI-ellipses, drawn from three swing points using a Fischer-designed geometric transformation of the golden ratio, wrap a price move in an ellipse and generate a signal when price breaks its outer edge, adding a time and angle dimension that pure price-based tools don't have.
The pitch is that no single tool is reliable enough to trade alone, but when a Fibonacci correction level, a candlestick reversal, a 3-point pattern, and a PHI-ellipse breakout line up at the same price and the same time, the odds of a real turning point go up. The book spends its middle chapters building each tool separately, then spends its last chapter stacking them on the same charts.
What it actually teaches
The corrections strategy, the part of the book with an actual entry-to-exit rule set, runs in this order.
SET A MINIMUM SWING SIZE
Before anything else, define how big a move counts as an impulse wave for the product you're trading. The book eyeballs about three years of daily data and uses a rule of thumb: a product should show no more than 15 to 20 peaks or valleys per 12 months. Worked examples use 80 basis points on the S&P 500 (1,000.00 to 1,080.00), 300 basis points on the DJ EuroStoxx 50, and 1.80 JPY (110.00 to 111.80) on the cash Japanese Yen. Smaller swing sizes mean more noise and more false signals.
WAIT FOR A 61.8 PERCENT CORRECTION
Once an impulse wave of at least your minimum swing size forms, track its retracement. The book works exclusively with the 61.8 percent level (the ratio 1.000 divided by 1.618) rather than 38.2 percent or 50.0 percent, because it lets the stop-loss sit closer to entry. If the correction never reaches 61.8 percent, there is no signal.
ENTER ON A BREAKOUT, NOT AT THE LEVEL
Don't buy or sell the instant price touches the 61.8 percent line. Enter when the previous day's high (for longs) or low (for shorts) is broken, which confirms the correction is actually over. For bigger swings the book widens this to a 2-day or 3-day high/low breakout to filter false breakouts (Table 4.2 pairs a 100-200 tick swing with a 3-4 day entry and 61.8 percent retracement; a 400-800 tick swing with a 1-day entry at the same retracement level).
STOP AT THE PRIOR VALLEY OR PEAK
The stop-loss sits below the valley that preceded a long entry, or above the peak that preceded a short entry. After a false breakout, the stop moves to the extreme before the false move. The authors' own S&P 500 example took only one stop-loss across nine trades, for a loss of 22.30 points.
TARGET 0.618 OF THE SWING, THEN TRAIL
The profit target is 0.618 times the size of the initiating impulse wave. Once that target is working, the book recommends a 3 to 4 day trailing stop (set to the prior 4-day low on longs, 4-day high on shorts) rather than a fixed target alone, so a stronger-than-expected move isn't cut short.
What it looks like Monday morning
Pick one liquid product you already watch (an index future, a major FX pair) and pull three years of its daily chart. Count peaks and valleys over each 12-month stretch until you land on a swing size that keeps you near the book's 15-to-20-per-year rule of thumb, the way the authors did for the S&P 500 and the cash Japanese Yen.
From there the rules are mechanical: track the current impulse wave, wait for a 61.8 percent retracement, enter on a prior-day high or low breakout, stop below the prior valley (or above the prior peak), and target 0.618 times the swing with a 4-day trailing stop once you're in. What the book does not hand you is proof this holds up outside the one bullish year it demonstrates, so treat the swing-size number you land on as a starting hypothesis to test on your own multi-year history, not a finished system.
| Entry | Entry price | Exit | Exit price | Points |
|---|---|---|---|---|
| Sell | 1427.50 | Stop-loss | 1449.80 | -22.30 |
| Sell | 1386.20 | Reverse buy | 1385.50 | 0.70 |
| Buy (reverse) | 1385.50 | Profit target | 1468.50 | 83.00 |
| Sell | 1517.50 | Profit target | 1351.30 | 166.20 |
| Sell | 1467.00 | Reverse buy | 1419.00 | 48.00 |
| Buy (reverse) | 1419.00 | Reverse sell | 1456.00 | 37.00 |
| Sell (reverse) | 1456.00 | Trailing stop | 1418.00 | 38.00 |
| Buy | 1449.00 | Trailing stop | 1468.00 | 19.00 |
| Buy | 1384.20 | Trailing stop | 1430.00 | 45.80 |
One losing trade (a 22.30-point stop-loss on the first signal); the rest were winners in a single bullish year the authors themselves describe as favorable, not a multi-year backtest.
Working with a 61.8 percent correction level is preferable because we can have a small stop-loss and, therefore, less risk.Robert Fischer and Jens Fischer, Candlesticks, Fibonacci, and Chart Pattern Trading Tools
Where it fails
- The main proof is nine trades in one bullish year. Both worked demonstrations, the S&P 500 Index and the Japanese Yen cash correction strategy, run January to November 2000 only, nine sample signals each. The authors call the S&P 500 result 'quite impressive' and note '2000 was favorable for trading corrections,' but there is no multi-year backtest, no win rate across regimes, and no out-of-sample test anywhere in the book.
- The book admits its own candlestick chapter doesn't hold up alone. In the closing chapter the authors cite outside test results from Rogalski Trading, Germany, which ran the most common candlestick patterns on the Dax 30 Futures Index and the Euro-Bund Future over a longer period and came back 'somewhat negative.' A third of the book's toolkit is flagged by the authors themselves as unreliable as a standalone method.
- The PHI-ellipse math is never actually given to you. The ellipses are built from a 'proprietary transformation' of the golden-ratio geometry that the text explicitly declines to publish. Readers can't verify or hand-draw the construction; the book instead routes you to WinPHI, bundled software on a 2003 CD-ROM that is not going to run on a current machine without work.
- No trade example subtracts slippage or commission. Every profit and loss figure in the S&P 500 and Yen tables is a raw price-point difference. The authors warn elsewhere that 'if the volume in the product is too small, the slippage and commission may make trading unprofitable,' but never apply that warning to their own results.
- Swing-size thresholds are calibrated to a market that no longer exists. The specific numbers, 80 basis points on the S&P 500, 300 on the EuroStoxx 50, 1.80 JPY on the cash Yen, were set against 2000-2002 volatility read from daily charts by eye. The book gives no formal volatility-adjustment formula, so a current reader has to redo that eyeballing exercise from scratch before any rule in the method applies.
- The 3-wave and 5-wave extension math leans on a wave count the authors say never works. The reliability discussion for PHI-ellipses states plainly that 'no trader has ever succeeded over a long period of time' applying Elliott's wave principle, because the wave count isn't stable. The price-extension method taught earlier in the book (multiplying an impulse wave by 1.618 to project wave 3 or wave 5) depends on correctly labeling that same impulse/corrective wave structure.
Who it is for
Buy it if
You already trade liquid futures, index, or FX products with a charting platform and want a simple, rule-based Fibonacci retracement entry (61.8 percent, breakout confirmation, defined stop and trailing stop) that you're willing to calibrate and backtest yourself. It also suits readers who want candlestick and classic chart-pattern basics covered in one place alongside the Fibonacci material.
Skip it if
You want a system with a published, replicable formula and a real multi-year, multi-regime backtest behind it: the PHI-ellipse construction is withheld as proprietary and the only performance evidence shown is nine trades apiece from a single favorable year. Skip it too if you have no interest in hand-tuning swing-size parameters per product, since the book supplies no automatic way to do that.
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