Fibonacci retracement levels aid in determining entry points from "summary" of Charting and Technical Analysis by Fred McAllen
Fibonacci retracement levels are widely used in technical analysis by traders and investors to identify potential entry points for trades. These levels are based on the Fibonacci sequence, a series of numbers where each number is the sum of the two preceding ones. The key levels that traders focus on are 23.6%, 38.2%, 50%, 61.8%, and 100%. These levels are drawn on a price chart to highlight potential areas of support or resistance. When a security is experiencing a pullback or a retracement, traders often look to Fibonacci levels to determine where the price may find support and potentially reverse direction. For example, if a stock is in an uptrend and begins to pull back, a trader may look for the price to retrace to a Fibonacci level, such as the 38.2% level, before resuming its upward movement. This level is seen as a potential entry point for a long trade. Conversely, if a security is in a downtrend and starts to retrace higher, traders may use Fibonacci retracement levels to identify potential resistance levels where the price could reverse and continue its downward movement. In this case, a trader may look to enter a short trade near a Fibonacci level, such as the 61.8% level.- Fibonacci retracement levels can help traders determine optimal entry points by providing key levels where the price is likely to find support or resistance. By combining these levels with other technical indicators and analysis techniques, traders can increase their chances of making profitable trades. Fibonacci retracement levels are a valuable tool in a trader's toolkit and can help improve the timing of their entries and exits.
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