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Fibonacci Retracement

Description

The Fibonacci retracement tool plots percentage retracement lines based upon the mathematical relationship within the Fibonacci sequence. These retracement levels provide support and resistance levels that can be used to target price objectives.

Fibonacci Retracements are displayed by first drawing a trend line between two extreme points. A series of six horizontal lines are drawn intersecting the trend line at the Fibonacci levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%, and 100%.

How this indicator works

  • The percentage retracements identify possible support or resistance areas, 23.6%, 38.2%, 50%, 61.8%, 100%. Applying these percentages to the difference between the high and low price for the period selected creates a set of price objectives.
  • Depending on the direction of the market, up or down, prices will often retrace a significant portion of the previous trend before resuming the move in the original direction.
  • These countertrend moves tend to fall into certain parameters, which are often the Fibonacci Retracement levels.

Calculation

Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers:

1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, and so on.

Related Indicators

  • Fibonacci Fan

    Fibonacci Fan Lines are displayed by drawing a trend line between two extreme points.

  • Fibonacci Arc

    Fibonacci Arcs are half circles that extend out from a trend line drawn between two extreme points.

Technical analysis focuses on market action – specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering what stocks to buy or sell, you should use the approach that you're most comfortable with. As with all your investments, you must make your own determination whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. Past performance is no guarantee of future results.

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