Fibonacci Percentage Retracements and Fibonacci Time Targets

Fibonacci Percentage Retracements

The preceding ratios help to determine price objectives in both impulse and corrective waves. Another way to determine price objectives is by the use of percentage retracements. The most commonly used numbers in retracement analysis are 61.8% (usually rounded off to 62%),38%, and 50%. Remember  that markets usually retrace previous moves by certain predictable percentages-the best known ones being 33%, 50%, and 67%. The Fibonacci sequence refines those numbers a bit further. In a strong trend, a minimum retracement is usually around 38%. In a weaker trend, the maximum percentage retracement is usually 62%.

It was pointed out earlier, that the Fibonacci ratios approach .618 only after the first four numbers. The first three ratios are 1/1 (100%), 1/2 (50%), and 2/3 (66%). Many students of Elliott may be unaware that the famous 50% retracement is actually a Fibonacci ratio, as is the two-thirds retracement. A complete retracement (100%) of a previous bull or bear market also should mark an important support or resistance area.

FIBONACCI TIME TARGETS

We haven't said too much about the aspect of time in wave analysis. Fibonacci time relationships exist. It's just that they're harder to predict and are considered by some Elliotticians to be the least important of the three aspects of the theory. Fibonacci time targets are found by counting forward from significant tops and bottoms. On a daily chart, the analyst counts forward the number of trading days from an important turning point with the expectation that future tops or bottoms will occur on Fibonacci days-that is, on the 13th, 21st, 34th, 55th, or 89th trading day in the future. The same technique can be used on weekly, monthly, or even yearly charts. On the weekly chart, the analyst picks a significant top or bottom and looks for weekly time targets that fall on Fibonacci numbers.