Fibonacci Retracements
The levels with a high probability of trend break or bounce, calculated at the 23.6 percent, 32.8 percent, 50 percent, and 61.8 percent levels of the trend range.
In finance, Fibonacci retracement is a method of technical analysis for determining support and resistance levels. It is named after the Fibonacci sequence of numbers, whose ratios provide price levels to which markets tend to retrace a portion of a move, before a trend continues in the original direction.
A Fibonacci retracement forecast is created by taking two extreme points on a chart and dividing the vertical distance by Fibonacci ratios. 0% is considered to be the start of the retracement, while 100% is a complete reversal to the original price before the move. Horizontal lines are drawn in the chart for these price levels to provide support and resistance levels. Common levels are 23.6%, 38.2%, 50%, and 61.8%. The significance of such levels, however, could not be confirmed by examining the data. Arthur Merrill in Filtered Waves determined there is no reliably standard retracement.
The appearance of retracement can be ascribed to price volatility as described by Burton Malkiel, a Princeton economist in his book A Random Walk Down Wall Street.
