A Fibonacci retracement is a common technical analysis pattern based on the golden ratio. When a stock price moves X dollars in one direction, then turns around and moves Y dollars in the previous direction, we say that there was a retracement of $Y. Many traders look for retracements where the X/Y is Phi, the golden ratio. This is called a Fibonacci retracement because the ratio was the same as the ratio between two adjacent Fibonacci numbers.
This type of analysis is not limited to Phi. Some traders look for a retracement with the square of that ratio. This is the same as the ratio between one Fibonacci number and the number 2 positions further in the Fibonacci series. Other common numbers are the square root of that ratio and one half.
Trade-Ideas automates the process of finding Fibonacci retracements. The Fibonacci algorithms are not that hard. And there are many software tools, some available for free on the web, which will compute these values for you if you input the highest and lowest recent prices for a stock. The time-consuming part is finding all the support and resistance levels, entering these values into the Fibonacci calculator, then watching for the price of each stock to hit one of these levels. The Trade-Ideas alerts server does all of that automatically.
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