Saturday, October 20, 2007

TA: Fibonacci Retracement

Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician Leonardo Fibonacci. In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and bottom) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

Example recent KLCI chart

Steps of construct Fibonacci retracement
1. Identify major market trend; up or down
2. For major up trend, select from peak to bottom
3. Fibonacci retracement ratio: 38.2%, 50% and 61.8% (Golden level)

Support level 1: 1291, level 2: 1262
Strong support level: 1237

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