the hAnDbook oF teChnICAl AnAlysIsthe observed price range. Besides having each percentage retracement level assigned
numerical values, the retracement levels are also geometrically consistent with respect
to the physical distances measured on the chart, that is, the actual physical distance
from the peak to the numerical value associated with the 38.2 percent level actually
measures 38.2 percent of the entire physical range on the chart, as measured from the
peak. In short, the numerical and geometrical determinations of the price associated
with the 38.2 percent retracement level are consistent with each other.
If we now apply ratio or logarithmic scaling to the same stock chart, we see
that the numerical values associated with the same three retracement levels are
identical to those on the linear or arithmetically scaled charts. This is because the
calculations use the same data points. See Figure 10.35.
Figure 10.34 Numerically and Geometrically Based Retracements on an Arithmeti-
cally Scaled Chart.
Courtesy of Stockcharts.com
Figure 10.35 Numerically Based Retracements on a Logarithmically Scaled Chart.
Courtesy of Stockcharts.com