We can create Fibonacci retracements by taking a peak and trough (or two extreme points) on a chart and dividing the vertical distance by the above key Fibonacci ratios. For most Fibonacci followers, if it breaks through that 61.8% level, it means that the market direction is going back to where it started. If the market slides through that 50% retracement level, then traders will look to see if the market finally stops its decline when it has retraced 61.8% of the prior move. If this 38.2% level gets broken, then the expectation is for the 50% retracement to be the next target. When the market drops back to 38.2% of its previous rise (the first major Fibonacci retracement), traders will check to see if any buyers come in. These are then applied to the chart to try and figure out potential hidden levels of support or resistance in the market. ![]() For now, we will focus on the 50% and the two more popular Fibonacci percentages of 38.2% and 61.8%. 50% is not a Fibonacci number, but has proved to be a generally popular number when correcting a primary or secondary price move. These are the three most popular percentages, although some traders will also look at the 50% and 76.4% levels. ![]() The golden ratio of 1.618 – the magic number – gets translated into three percentages: 23.6%, 38.2% and 61.8%.
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