the hAnDbook oF teChnICAl AnAlysIs10.4.1 Fibonacci Φ‐based ratio intervals
Dividing the price range into equally sized intervals or equally spaced levels is
not the only way to forecast potential support in a price decline. Dividing the
observed price range according to Fibonacci (Φ‐based) ratios or percentages is an
extremely effective way of forecasting potential support in downside retracements
and resistance in upside retracements.
Popular Fibonacci percentage retracements include:
■ (^) 23.6 percent
■ (^) 38.2 percent
■ (^) 61.8 percent
■ (^) 78.6 percent
It is customary for charting packages to also include the 50 percent retracement.
Fibonacci retracement percentages of 38.2 percent, 50 percent, and 61.8 percent
are considered to be the most important. In Figure 10.16, we observe price retrac-
ing and finding support at the 61.8 percent Fibonacci retracement level.
Figure 10.17 shows price retracing to the upside and finding resistance at
around the 38.2 percent Fibonacci retracement level.
Figure 10.18 is a chart of the daily EURUSD showing Fibonacci downside
retracement support at points 2, 3, and 4. Point 1 shows price finding resis-
tance at the 23.6 percent level. The retracement levels are only applicable after
point B.
Figures 10.19 to 10.22 are examples of Fibonacci upside retracements in ac-
tion on the foreign exchange cash markets.
Figure 10.16 Fibonacci Downside Retracements within an Observed Price Range.