Fibonacci Number and Ratio Analysis
10.13 Fibonacci, Dow, Gann, and Floor Trader’s Pivot Point Levels
Of all the possible percentage retracement levels, the 38.2 percent, 50 percent, and
61.8 percent levels are the most significant and widely employed. From the table
in Figure 10.45, we can clearly see why this is the case.
From the table, it is obvious that the 50 percent retracement level is found
in most of the popular retracement approaches. Both Gann and Dow considered
the 33.3 percent (one‐third), 50 percent, and 66.6 percent (two‐thirds) retrace-
ments as very significant levels during market reversals, especially when trying to
determine if a reversal is merely a secondary reaction or a full‐blown change in
the primary trend.
The Floor Trader’s Pivot Point levels also contribute to the upper and lower 5
percent retracement bands. A pivot point is defined as the typical price based on
yesterday’s high (H), low (L), and closing prices (C):Typical price = H + L + C 3 = Pivot Point()/Let us now assume two special cases. The first is when the daily close is at the
high of the day. Let us also normalize yesterday’s range to a maximum of 100 units
where the maximum high is 100 and low is 0, for the sake of clarity. Therefore,
with reference to Figure 10.46, the Pivot Point level for the following day will be:Pivot Point Level 100 0 100 /3=++=( ) 666.Figure 10.45 Retracement Ratio Relationships.