Fibonacci retracement can often be applied after a stock has moved considerably whither it be up or down. The retracement points are often used as potential price points where there may be a reversal or a continuation of its trend.
For Example
A stock moves from $50 to $100 - the downward retracement of 38.2% is
$100-(( $100-$50)*0.382) = $80.9 I like to think of this as the pivot point of a stock or a moderate retracement
The same stock with a downward retracement of 61.8% is the golden ratio
$100-(( $100-$50)*0.618) = $69.1
At $69.1 traders then keep a close eye to see if the stock finds its support and begins retracing back in an upward trend.
50% is based on the theory that the averages often retrace to half. ( Not part of the Fibonacci sequence but an important point
23.6% is considered to be a shallow retracement these still occur but would require more of a closer watch and a faster trigger finger.
Fibonacci retracement is used in conjunction with other chart tools such as candle sticks to get a more advantageous entry point for trading.
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