FIBONACCI RETRACEMENTS

Fibonacci retracements use horizontal lines to indicate areas of support or resistance. They are calculated by first locating the high and low of the chart. Then five lines are drawn: the first at 100% (the high on the chart), the second at 61.8%, the third at 50%, the fourth at 38.2%, and the last one at 0% (the low on the chart). After a significant price movement up or down, the new support and resistance levels are often at or near these lines.

Fibonacci studies are not intended to provide the primary indications for timing the entry and exit of a stock; however, they are useful for estimating areas of support and resistance. Many people use combinations of Fibonacci studies to obtain a more accurate forecast. For example, a trader may observe the intersecting points in a combination of the Fibonacci arcs and resistances. Many more use the Fibonacci studies in conjunction with other forms of technical analysis. For example, the Fibonacci studies are often used with Elliott Waves to predict the extent of the retracements after different waves. Hopefully you can find your own niche use for the Fibonacci studies, and add it to your set of investment tools!