Retracement Percentages

Another technical indicator another involves expected sizes of corrections, usually involving threshold percent retracements, e.g., 38.2%, 50% or 61.8% retracement of a previous high or low. The 38.2% and 61.8% numbers reflect so called “Fibonacci” ratios, which are derived from numbers theory and reflect observed patterns of some natural phenomenon as well as some price patterns in financial markets. As with the previously discussed items, there is no economic theory or supply/demand rationale for why price patterns might follow a Fibonacci pattern. Still, it could be influential on the placement of a lot of market entry or exit orders, particularly if it coincides with other potential price thresholds based on moving averages, calculated support/resistance, or other technicals.

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