### Fibonacci retracement

In reply to the man's question 10/18, about Fibonacci retracement, this is an expression in the investment industry referring to the % of a recent movement in an investment's market price that is 'retraced' after a recognized reversal in the security's price. Technical analysts within the investment management world use the Fibonacci ratio, and variations, to aid in forecasting the probability of the 'next turn' in the dynamic market price of a specified security or market index. It is only one of many types of calculations and geometric observations investment analysts use in forecasting 'probable' turning points (or reversals) in investment prices.

For example, if stock A's recent price movement was downward by \$10, before it turned, or bounced, then the 'retracement' of the \$10 is what is monitored with Fibonacci ratios to determine the next possible reversal of the stock price. In this example, if one utilizes the most popular Fibonacci ratio of .618, then the retracement of the \$10 in our example might be be \$6.18, the amount the security's price may advance before reversing again, as in a stair step formation. As most people are aware, stock market prices don't go straight up or down over time; they go up and down in a stair-step fashion, and it's the Fibonacci ratios that help analysts determine these possible change in the current trend.

In the real world, investments don't turn on the Fibonacci-calculated pricing, but they do seem to turn at certain variations of the Fibonacci ratios, ie, the square root of .618, or Fib squared, or even the reciprocal of Fib compared to 1, ie, .382 (1- .618). None of the various Fib ratios do not guarantee a turning point in a stock's price, but they identify possible pricing points, that wouldn't exist otherwise. It's not certain when the Leonardo's famous ratio started to be utilized in the investment industry, but that would be something to investigate.

Liam Morris
Fib Fan