DEFINITION of 'PHI-Ellipse'

An investment tool used in technical analysis that is also known as the Fibonacci ellipse. The Phi Ellipse is used by traders to identify general market trends, in contrast to standard Fibonacci technical tools that attempt to determine resistance and support levels. Once three points are identified on a chart, the phi-ellipse can be drawn.

BREAKING DOWN 'PHI-Ellipse'

To draw an phi-ellipse, three points must first be selected: the first one is just an arbitrary point, the second is the peak that occurs after that arbitrary point (indentified by a reversal from the peak). The third point is another reversal back to the original direction of the trend. Once the ellipse is drawn, the line that bisects this ellipse is used to indicate the trend.

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