In finance, Fibonacci retracement is a method of technical analysis for determining support and resistance levels. They are named after their use of the Fibonacci sequence created by Leonardo Fibonacci nearly 1,000 years ago.
Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction they were headed. After a significant movement in price (be it up or down), the new support and resistance levels are often at these chart lines.
Fibonacci Retracement and Predicting Stock Prices
For reasons that are unclear, these Fibonacci ratios seem to play an important role in the stock market, just as they do in nature. They are also evident in biology and architecture. They can often be used to determine critical points that cause an asset’s price to reverse in value.
Fibonacci retracements are the most widely used of all the Fibonacci trading tools. This is partially due to their relative simplicity and partially due to their applicability to almost any trading instrument. They can be used to identify and confirm support and resistance levels. To summarize, the overall direction the stock market is headed is rarely a straight-line event.
What this Means for You.
When you see the stock market bounce up about halfway to the highest point, it may be because it is following Leonardo Fibonacci’s predictive observation and getting ready to go down significantly. Take heed!! Just because the stock market has been going up, doesn’t mean the worst is over. The worst may not be over! Now is the time, more than ever to make sure your money is in the right spot.
Is your money in the right spot?