“Trading with Charts for Absolute Returns”
By Robert Fischer
John Wiley & Sons, Inc., 2011
$85.00; 226 pages
Individual traders and hedge fund managers generally prefer generating absolute (positive) returns rather than achieving only relative returns that may be negative. Robert Fischer provides a fascinating journey into reaching that plateau. He emphasizes that his strategies use a systematic trading approach that can go long or go short, and include risk management parameters.
Fischer first explains who the players are in the commodity and stock markets, as well as the types of computer trading methods that are used. Then he covers the concept of risk and diversification. His tools include three- and four-point trend line touches, five-point trend channels, support and resistance lines, and PHI phase. Additionally, he provides Fibonacci-derived rules to enter and exit trades, including insight into proper stop-loss order placement and establishing profit targets. He emphasizes that most investors can identify chart patterns easily without using a computer.
One chapter is devoted to the first basic absolute strategy, namely four-point Fibonacci trend channels. To improve upon its buy and sell signals, Fischer added three-point trend lines and five-point Fibonacci trend channels. Rules are provided to use all these components together. Moreover, the author presents advanced chart patterns that he found provides a more rapid identification of price turning points that increase overall performance by 10%-20% while reducing drawdown risk. These patterns include: Four-point support and resistance lines, horizontal trend channels and diagonal trendlines.
The second basic absolute return strategy is based on unique PHI ellipses that further improve the returns. These ellipses link the charts with Fibonacci ratios. This ellipse “is a special device because it is the only geometrical trading tool to circumvent price data and to include price and time.” The author suggests combining Fibonacci ratios, clusters and candlesticks with regular charts to assess the best opportunities to attain absolute returns because he discovered that simply using charts alone did not achieve the desired performance. Fischer provides numerous easy-to-read charting examples with complete explanations. Also covered are Elliott wave principles.
There are 1,500 trading signals provided on a companion website with free access to proprietary software. Moreover, he provides many examples of chart patterns that work individually and together in most market scenarios. He stresses that chart pattern evaluation requires discipline, accuracy and patience to be properly applied. Additionally, he states that the key to success is to identify and analyze the peaks and valleys in any market that you are trading.
In conclusion, the material presented in this book is suited for both novice and experienced traders; however, they need to put in hard work, as well as have discipline and knowledge to excel. Unfortunately, many traders do not succeed in achieving absolute returns, but if they apply the strategies and principles of this book, their results can be gratifying.
Leslie N. Masonson is the author of “Buy DON’T Hold” and “All About Market Timing,” (Second Edition). Reach him at email@example.com.