WHAT ARE Phi Ellipses

Phi Ellipses are part of a Fibonacci trading tool used to aid investors in identifying price movements.

BREAKING DOWN Phi Ellipses

Phi ellipses are a little-known trading tool used to detect price patterns so investors are better able to forecast pricing moves, and therefore can detect the best time to buy or sell. The patterns found in the phi ellipses have practical application to many trading forums, such as Forex trading platforms.

Essentially with this model investors attempt to buy high and sell low. One of the main uses of phi ellipses is to identify the underlying structures of price movements by analyzing the changing shape of the ellipse. The phi ellipse is normally drawn by a computer program due to its complexity.

Working with Fibonacci trading tools, such as phi ellipses, is just as important as working with technical or fundamental trading tools. The big advantage an investor gains by working with a phi ellipse is that price moves are no longer random, but can be used for profitable trading.

Pros and Cons of Phi Ellipses

Phi ellipses are the only known trading tool capable of integrating both price and time in a single analysis. The phi ellipses can dynamically adjust to price moves. In a strong market, the phi ellipses can stay weeks in the trend direction and in sideways markets the model can change direction. Also with phi ellipses, trading signals come opposite to signals generated by technical indicators without any delay in time. The phi ellipse can be applied to almost any product that has a enough volatility and high trading volume, and there is no optimization in phi ellipses as graphical trading tools.

Phi ellipses develop over time. The form of the phi ellipse is inherent from the beginning of a price movement, but traders recognize phi ellipses only at their very end. Although all phi ellipses share a common price structure, their final form can vary, becoming thick, thin, long or short. Normally investors can spot the smaller trends, which are already part of a bigger trend scheme. In other words phi ellipses already exist at the beginning of a larger picture that reveals its final form months later. 

Among the negative aspects of phi ellipses, traders cannot program them to operate as a fully automated trading signal, a trader needs a lot of discipline to work with the tool effectively, and traders must be familiar with applying phi ellipses to price charts in order to make use of the information they provide.