UTILIZE FIBONACCI RETRACEMENTS
We use a variation of Fibonacci (1170-1250), the famed 13th Century mathematician, and his retracement logic to further identify Support and Resistance lines.
38/50/62%.
As the market moves up the first steady moves to correct will move to 38% below the index high. At times the market will continue the downside, first to the 50%, and sometimes to 62%, before reversing again and beginning the upward trend again.
This theory is used by many chartists with stocks and option trading, and can have some validity for analyzing short term moves on an index.
Start with the high and low prices of the index.
Track each of these % as Retracements levels.
S/R form around these Retracements, especially the 50% level, and there is more
likelihood of reaction at these levels.
The 50% retracement is now so obvious to all markets that it’s more difficult to see if this is really the market moving, or traders in unison creating the trend.
Knowing the obvious, and where the S/R lines will fall, is based on how well the trader tracks moving averages, highs and lows, and all the tools to begin to see “edges” and “trends”.
