Using Candlestick Charts and Fibonacci Retracements

艾叔 · 2023-03-10T04:06:35.000Z

Usually the market neither rises nor falls straight up, but takes two steps forward and one step back. (Advance two, retreat one) (The Fibonacci drawing method will be updated later and used in conjunction with candle charts) Before the current trend can continue to develop, the market usually needs to make a certain degree of retracement of the upward process or downward process that has formed. Among such retracement levels, the more commonly used are the 50% retracement level, and the 38% and 62% Fibonacci retracement levels (shown in Figures 12.1 and 12.2). Fibonacci was a 13th-century mathematician who derived a special sequence of numbers. Without going into too much detail, simply divide these numbers by each other and you can derive a set of proportions - which, not surprisingly, are the Fibonacci ratios.

Usually the market neither rises nor falls vertically, but takes two steps forward and one step back.
(The Fibonacci drawing method will be updated later, combined with the candlestick chart)
Before the current trend continues, the market will usually make a certain degree of retracement of the upward or downward progress that has been formed. Among these retracement levels, the more commonly used ones are the 50% retracement level and the 38% and 62% Fibonacci retracement levels (as shown in Figures 12.1 and 12.2). Fibonacci was a 13th century mathematician who derived a special set of numbers. Without going into too much detail, if we divide these numbers by each other, we can deduce a set of ratios-not surprisingly, this is of course the Fibonacci ratio.
This group of ratios includes 61.8% (or its reciprocal 1.618) and 38.2% (or its reciprocal 2.618).
This is why the 62% (61.8% rounded) retracement level and the 38% (38.2% rounded) retracement level are so popular. The common 50% retracement level also belongs to the Fibonacci ratio. The 50% retracement level may be the most concerned price level. This is because, whether it is Gann's theorists, Elliot's wave theorists, or Dow Theory supporters, all use the 50% retracement level.
【Figure 12.3】The percentage retracement level can effectively help us predict the resistance area in a bear market.
 
50% Retracement Example 1 - The high at point A ($502) occurred in 1987 and was formed in a Bearish Engulfing Pattern. The sell-off that began in late 1987 ended at the piercing pattern at point B, which is $425. Based on the 50% retracement level of the sell-off from A to B, the market should encounter a resistance level at $464 (first subtract the price of the low at B from the price of the high at A, divide the difference by 2, and then add this result to the price of the low at B to get this number). Therefore, at $464, we will carefully watch for resistance to occur and closely watch for the appearance of bearish candlestick indicators to confirm this resistance level. At point C, a Bearish Engulfing Pattern is indeed formed. At the same time, the price at the highest point is $469, in other words, it is only $5 away from the 50% retracement level. The market then begins the next phase of the decline.
50% Retracement Example 2 - The sell-off that started at C ended with a Morning Star at D. The 50% retracement level of the move from the high of $469 at C to the low of $392 at D was at $430, which was a resistance area. A bearish candlestick confirmation signal should have appeared near this level. In the area shown by point E, the gold market reached the $433 level. The gold market was only $0.50 away from forming a bearish engulfing pattern on these two candlesticks (the week of January 28 and the week of December 5, which was point E). From point E, another downtrend occurred.
50% Retracement Example 3 - From the high at E to the low at F in 1989 at $357, the price decline was $76. (Interestingly, the price declines were almost the same in all three sell-offs, A to B, C to D, and E to F.) There were no candlestick indicators indicating a bottom reversal at the June 5 low. The market tested this low a second time in September and formed a candlestick that resembled a hammer.
The next resistance level, which is the 50% retracement level of the decline from E to F, is $395. Gold market prices later exceeded this level upwards. Because at the end of 1989, the gold market broke through a 2-year resistance line upwards. On the other hand, the gold market also formed a double bottom reversal pattern at the level of $357 in 1989. Looking at the larger scale, looking for the 50% retracement level of the larger price movement, calculating the 50% retracement level of the entire decline from the 1987 high A to the 1989 low F, we get One is located at the $430 resistance level. Near $430, during the week of November 20 (point G), the market sent two signals that the current uptrend was in trouble. Both signals occurred right at the $425 level. One is a harami pattern and the other is a hanging man and is part of the harami pattern. A few weeks later, during the week of January 22, the market reached the peak of the current trend at $425. The next week's price action formed another hanging man. From here, the gold market begins to decline.
 