Fibonacci Number and Ratio Analysis
percent = 61.8 percent. Ratios and percentages may be used interchangeably to
designate various Fibonacci levels.10.3 Fibonacci Retracements, Extensions, Projections, and Expansions
Fibonacci numbers and ratios are employed as a means of determining potential
support and resistance levels during:■ (^) Price retracements
■ (^) Price extensions
■ (^) Price projections
■ (^) Price expansions
Fibonacci numbers and ratios are also employed to time potential reversals in
the market, that is, as projections in time, as we shall see in subsequent sections.
Before proceeding, it would be best to clarify, in a general way, the terms
retracement, extension, projection, and expansion.
10.3.1 price retracements
A retracement is a price decline or correction from a significant peak, or a rally
from a significant trough. The amount of retracement is usually measured as a
percentage of the observed price range, measured from the peak to a previous
significant trough, or from a trough up to a previous significant peak. In short, we
have downside as well as upside retracements. See Figure 10.5.
Figure 10.6 is an idealized example of an upside Fibonacci retracement. It is
essentially just the inverse of a downside Fibonacci retracement.Figure 10.5 Downside Retracement within an Observed Price Range.