Fibonacci retracements are indicator tools that help identify support and resistance levels and potential trend retracements between these two levels.
A retracement is different from a reversal. A retracement is a short-term reversal in trend followed by a return to the previous trend. A reversal is a more than temporary change in the trend direction. ( Click this link to access an economic calendar for your trading strategies )
It is based on key numbers identified by mathematician Leonardo Fibonacci in the 13th century and the ratios between the numbers in a series.
Taking two extreme points, the peak, and the trough, on the stock market chart and dividing the vertical distance by the Fibonacci ratios of 0%, 23.6%, 38.2%, 50%, 61.8%, and 100% is the basic concept for this indicator.
This creates six horizontal lines on the chart, two of them being the resistance and support lines. Support and resistance levels are ceilings and floors where the price never seems to be able to break through those lines. The measure of potential retracements of trends is in the zone, at the other four horizontal lines, between these two levels.Fibonacci Retracement Indicator | Indicator Series Click To Tweet
Here are some retracement tools similar to the Fibonacci:
The Camarilla Pivot plot uses six lines, H5, H4, H3, L3, L4, and L5. H5 and L5 being the most top and bottom resistance and support levels to target profits. Lines in between L5 and H5 indicate a pivot point, reversals, or permanent corrections.
Murrey Math Lines
The Gann Theory says that prices move in octaves and in the Murrey Math Lines, this is represented by 1/8, 2/8, 3/8, 4/8, 5/8, 6/8, 7/8, and 8/8 lines. The 1/8 line represents the ultimate bottom support or floor level whereas the 8/8 level represents the ultimate top resistance or ceiling.
Everything in between represents reversal pivots and strong and weak resistance and support levels.
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