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Fibonacci

For the purpose of pullbacks (retracements), the use of Fibonacci numbers can aid as a tool to determine possible support or resistance points to the pullback, in other words where the pullback may end.

The most common of numbers used is 38.2, 50, and 61.8. What these numbers mean is a percentage or fraction of the advance in price. So if price advanced in an uptrend for 100 points, a 50% retracement level would be 50 (50% of 100) points below the high of the advance. A 38.2% retracement level would be 38.2 (38.2% of 100) points below the high of the advance.

The resulting retracement levels can then be seen as possible ends to the pullback.

 

 

Move on to Step 4 - Module 2 > Trading System Builder Tool Kit: Trading Rules > Trigger: Support & Resistance

 

  

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