Retracement levels

Often known as Fibonacci retracement levels

When you watch trend moves on any stock chart, you can see that every trend move has breaks. Such break is move against the direction of main trend. The strength of this pull back move is good custom indicator in stock chart analysis. It can help us predict the future trend in prices of stock.

The most important value you have to monitor is called retracement level. This level indicates how deeply was previous trend move penetrated by correction move.

There are these 4 important levels:

40% level
50% level
60% level
80% and bigger level

40% retracement level

When pullback finish at 40% level of previous trend move then you can expect that trend is intact and after few days of consolidation it will resume again.

40% retracement level

50% retracement level

Trend is intact. You can expect restoring of previous trend.

50% retracement level

60% retracement level

This is already relative deep pull back. Heads up! Previous trend is in danger and can be finished soon.

60% retracement level

80% and bigger retracement level

Trend is finished. Do not expect continuation of previous trend. You can expect something like double top or double bottom chart pattern or developing of new trend in opposite direction.

80% retracement level

Important retracement information:

Do not expect to use these level for entry into new trade. You can use them much better as support and resistance levels
Do not expect that price stops exactly on level value. Expect much more level price zone
Monitor price action on these levels and combine it with another stock chart analysis tools like candlesticks or moving averages
Tool called Fibonacci retracements is available in every good stock chart analysis software

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