Fibonacci Retracement

In identifying trendlines, retracement presents a particular problem. If short term, it may be explained away with identification of flags or pennants, and reaction high and low spikes can be ignored with the use of internal trendlines. However, longer-term retracement—lasting between one and three months—presents greater difficulty. It may easily be misidentified as a swing trend or even as a secondary trend due to its duration.

One method for tracking these price patterns against the prevailing trend is with Fibonacci retracement analysis. Leonardo Fibonacci (1170–1250) was a mathematician who developed an observation of numerical patterns that came to be called the Fibonacci sequence. The sequence consists of the sum ...

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