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ABSTRACT

A PROJECT ON TECHNICAL AND FIUNDAMENTAL ANALYSIS ABOUT BULLION MARKETS The main stream of the organization is share, commodity and FOREX trading and Research. Their priority is to make people transform from ignorant to expertise in the chosen field. Everyone should be aware of investment opportunities in capital markets. Still it is an untapped and an overflowing market, they create opportunities for clients and they teach clients how to make a raw chance into an earning opportunities The main objective of the study is about to find out the technical and fundamental impact of bullion market which includes the price range of GOLD AND SILVER both in national and international market. We are going to take the data of Gold and Silver for seven years to analyze about the fundamental and technical tools involved in the market. In case of fundamental analysis we are going to use Inflation, Gold Reserve Ratio, Interest rate, Global indices, and local indices in to consideration. For technical analysis we going to take Indicators, Oscillators, and some technical tools in to consideration. In indicators we are going to use methods like • • • Oscillators • • • Relative strength Index Stochastics MACD Parabolic SAR Moving average Bollinger band

Tools • • • Andrews pitch fork Trend line Fibonacci retracement levels

From the findings we are going to analyze about the future price variations in bullions market and will suggest about that to the company.

PRIMARY OBJECTIVE • • To find out the technical and fundamental impact of bullion market To analyze about the impact of gold with global economy

SECONDARY OBJECTIVE • To suggest the clients about the technical move in the market in future period of time.

SCOPE OF THE STUDY The study is conducted in a way to calculate the risk and return of bullion market for past ten years. This will help the investors viz, individuals and the clients of the company to yield them higher return with lesser risk.

METHODOLOGY RESEARCH DESIGN The type of research design is undertaken in descriptive design since the pricing movements of bullion markets are analyzed.

SAMPLE DESIGN For the purpose of this study the daily closing prices of Gold and silver are included from Multi Commodity Exchange were taken and their price movements are computed and studied. We will be analyzing the following prices • • • • Global Gold and Silver prices Dollar index USDINR prices Indian Gold price with reference to MCX

SOURCES OF DATA Secondary source • • • •

International Gold prices from MT4 platform Dollar charts from Windsor brokers USDINR prices from Indian forex market Indian gold prices from MCX Fundamental data’s from www.forexfactory.com

TOOLS USED FOR ANALYSIS FUNDAMENTAL TOOLS • • • • Inflation Unemployment claims Data’s related to dollar index Data’s released by IMF TECHNICAL TOOLS • • • • • • • • Candle stick patterns Line chart patterns Trend line patterns Tools with mathematical calculations Oscillators Indicators Andrews pitch fork Fibonacci retracement levels .

In economics. each unit of currency buys fewer goods and services. Views on which factors determine low to moderate rates . Consequently. and some economists still use the word in this way. uncertainty over future inflation may discourage investment and savings. inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. When the general price level rises. Negative effects of inflation include a decrease in the real value of money and other monetary items over time. Inflation's effects on an economy are various and can be simultaneously positive and negative. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. the annualized percentage change in a general price index (normally the Consumer Price Index) over time. to distinguish it from rising prices. which may also for clarity be called 'price inflation'. An increase in the money supply may be called monetary inflation. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions).Description for tools used for study Inflation The term "inflation" originally referred to increases in the amount of money in circulation. inflation is a rise in the general level of prices of goods and services in an economy over a period of time. and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. most economists today use the term "inflation" to refer to a rise in the price level. and encouraging investment in non-monetary capital projects. A chief measure of price inflation is the inflation rate. However.

and taxes may cause the amount received by the producer to differ from what the consumer paid. In India and the United States. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. or changes in available supplies such as during scarcities. most economists favor a low. This differs from the CPI in that price subsidization. Other widely used price indices for calculating price inflation include the following: Producer price indices (PPIs) which measures average changes in prices received by domestic producers for their output. the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Commodity price indices: It measure the price of a selection of commodities. Core price indices: . steady rate of inflation. Producer price index measures the pressure being put on producers by the costs of their raw materials. and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy. Today. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee. Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn. There is also typically a delay between an increase in the PPI and any eventual increase in the CPI. an earlier version of the PPI was called the Wholesale Price Index. as well as to growth in the money supply. or offset by increasing productivity. and through the setting of banking reserve requirements. Generally. or it could be absorbed by profits. This could be "passed on" to consumers. these monetary authorities are the central banks that control monetary policy through the setting of interest rates.of inflation are more varied. However. through open market operations. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services. profits.

Investors can use this report to gather pertinent information about the economy. Buyers and sellers move markets based on expectations and emotions (fear and greed). it can be difficult to detect the long run trend in price levels when those prices are included. but it's a very volatile data. UNEMPLOYMENT CLAIMS The employment situation is extremely important for a macroeconomic analysis. and vice versa. . This report tracks how many new people have filed for unemployment benefits in the previous week.Because food and oil prices can change quickly due to changes in supply and demand conditions in the food and oil markets. Markets fluctuate. so the four week average of jobless claims is monitored. so the financial markets track employment indicators. TECHNICAL TOOLS CANDLESTICK PATTERNS Introduction to Candlesticks History The Japanese began using technical analysis to trade rice in the 17th century. which removes the most volatile components (such as food and oil) from a broad price index like the CPI. although this is a low impact indicator compared with the monthly BLS's "Employment Report". fewer people have jobs. and so on). earnings. The actual price may not reflect the underlying value. when more people file for unemployment benefits. many of the guiding principles were very similar: • • • • • The "what" (price action) is more important than the "why" (news. While this early version of technical analysis was different from the US version initiated by Charles Dow around 1900. All known information is reflected in the price. central banks rely on it to better measure the inflationary impact of current monetary policy. For instance. Because core inflation is less affected by short run supply and demand conditions in specific markets. Therefore most statistical agencies also report a measure of 'core inflation'.

The hollow or filled portion of the candlestick is called "the body" (also referred to as "the real body"). . The long thin lines above and below the body represent the high/low range and are called "shadows" (also referred to as "wicks" and "tails"). Formation In order to create a candlestick chart. high. a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price. The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. a hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body representing the closing price. low and close values for each time period you want to display.Candlestick charting first appeared sometime after 1850. you must have a data set that contains open. Much of the credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata. It is likely that his original ideas were modified and refined over many years of trading eventually resulting in the system of candlestick charting that we use today. If the stock closes lower than its opening price. If the stock closes higher than its opening price.

much depends on their position within the broader technical picture. short candlesticks indicate little price movement and represent consolidation. Hollow candlesticks. Conversely.Compared to traditional bar charts. it can lead to excessive bullishness. Each candlestick provides an easy-to-decipher picture of price action. If buying gets too aggressive after a long advance. The longer the white candlestick is. the more intense the buying or selling pressure. many traders consider candlestick charts more visually appealing and easier to interpret. indicate buying pressure. where the close is less than the open. where the close is greater than the open. . After extended declines. Long Versus Short Bodies Generally speaking. the longer the body is. Immediately a trader can see compare the relationship between the open and close as well as the high and low. Filled candlesticks. long white candlesticks can mark a potential turning point or support level. The relationship between the open and close is considered vital information and forms the essence of candlesticks. This indicates that prices advanced significantly from open to close and buyers were aggressive. the further the close is above the open. indicate selling pressure. While long white candlesticks are generally bullish. Long white candlesticks show strong buying pressure.

Black Marubozu form when the open equals the high and the close equals the low. After a long advance. Candlestick with long shadows show that traded extended well past the open and close. A White Marubozu forms when the open equals the low and the close equals the high. the further the close is below the open.Long black candlesticks show strong selling pressure. . Even more potent long candlesticks are the Marubozu brothers. Long versus Short Shadows The upper and lower shadows on candlesticks can provide valuable information about the trading session. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. After a long decline a long black candlestick can indicate panic or capitulation. Black and White. The longer the black candlestick is. This indicates that buyers controlled the price action from the first trade to the last trade. This indicates that prices declined significantly from the open and sellers were aggressive. Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. a long black candlestick can foreshadow a turning point or mark a future resistance level. This indicates that sellers controlled the price action from the first trade to the last trade.

and the weak close created a long upper shadow. Conversely. sellers later forced prices down from their highs.Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session. However. and bid prices higher. . candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However. buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.

Alone. One long shadow represents a reversal of sorts. Neither buyers nor sellers could gain the upper hand and the result was a standoff. Any bullish or bearish bias is based on preceding price action and future confirmation. The small real body (whether hollow or filled) shows little movement from open to close. inverted cross or plus sign. After a long decline or long black candlestick. . and the shadows indicate that both bulls and bears were active during the session. a spinning top indicates weakness among the bears and a potential change or interruption in trend. After a long advance or long white candlestick. a spinning top indicates weakness among the bulls and a potential change or interruption in trend. The word "Doji" refers to both the singular and plural form. Doji Doji are important candlesticks that provide information on their own and as components of in a number of important patterns. Doji form when a security's open and close are virtually equal. prices moved significantly higher and lower in the meantime. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross. spinning tops represent indecision. Even though the session opened and closed with little change. doji are neutral patterns. long lower shadow and small real body are called spinning tops.Candlesticks with a long upper shadow.

Determining the robustness of the doji will depend on the price. After an advance. or long black candlestick. a doji that forms among candlesticks with long real bodies would be deemed significant.Ideally. Relative to previous candlesticks. but not necessarily. the open and close should be equal. or long white candlestick. the doji should have a very small body that appears as a thin line. Steven Nison notes that a doji that forms among other candlesticks with small real bodies would not be considered important. While a doji with an equal open and close would be considered more robust. recent volatility. Different securities have different criteria for determining the robustness of a doji. while a $200 stock might form one with a 1 1/4 point difference. a doji signals that the buying pressure is starting to weaken. and previous candlesticks. However. A $20 stock could form a doji with a 1/8 point difference between open and close. Doji convey a sense of indecision or tug-of-war between buyers and sellers. The result is a standoff. Prices move above and below the opening level during the session. but close at or near the opening level. After a decline. Neither bulls nor bears were able to gain control and a turning point could be developing. it is more important to capture the essence of the candlestick. Doji and Trend The relevance of a doji depends on the preceding trend or preceding candlesticks. a doji signals that selling pressure is starting to .

After a long white candlestick and doji. Therefore. . long black candlestick. traders should be on the alert for a potential evening doji star. After an advance or long white candlestick. further downside is required for bearish confirmation. a doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Whereas a security can decline simply from a lack of buyers. Even after the doji forms. This may come as a gap down. Doji alone are not enough to mark a reversal and further confirmation may be warranted.diminish. continued buying pressure is required to sustain an uptrend. or decline below the long white candlestick's open. a doji may be more significant after an uptrend or long white candlestick.

Even though the bears are starting to lose control of the decline. a doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end.After a decline or long black candlestick. After a long black candlestick and doji. long white candlestick or advance above the long black candlestick's open. Bullish confirmation could come from a gap up. Long-Legged Doji . further strength is required to confirm any reversal. traders should be on the alert for a potential morning doji star.

These doji reflect a great amount of indecision in the market. The pattern will have two highs and two lows. all touching the trend lines. LINE CHART PATTERNS Implication An Ascending Continuation Triangle is considered a bullish signal. This pattern is confirmed when the price breaks out of the triangle formation to close above the upper trend line.Long-legged doji have long upper and lower shadows that are almost equal in length. It indicates a possible continuation of the current uptrend. The lower trend line is rising and the upper trend line is horizontal. After a whole lot of yelling and screaming. . the end result showed little change from the initial open. This pattern occurs because the lows are moving increasingly higher but the highs are maintaining a constant price level. but closed virtually even with the open. Long-legged doji indicate that prices traded well above and below the session's opening level. Description An Ascending Continuation Triangle shows two converging trend lines.

It may take between one and three months to form. The break out. Shape of Triangle The horizontal top trendline need not be completely horizontal but it should be close to horizontal. These patterns have two converging trend lines.somewhere between three-quarters and two-thirds of the horizontal width of the formation. Ascending Triangles and Descending Triangles. Occurrence of a Breakout Technical analysts pay close attention to how long the Triangle takes to develop to its apex. Wedges.clearly penetrate one of the trendlines . should occur well before the pattern reaches the apex of the Triangle. The difference is that these particular formations are reversal and not continuation patterns. The general rule is that prices should break out . Duration of the Triangle The Triangle is a relatively short-term pattern. Description Bottom Triangles and Bottom Wedges make up a group of patterns which have the same general shape as Symmetrical Triangles.Bottom Wedge Classic Pattern Implication Bottom Triangles and Bottom Wedges are considered to be bullish signals that mark a possible reversal of the current downtrend. Bottom Triangle . The pattern will display two highs touching the upper .Important Characteristics Following are important characteristics about this pattern. The closer the breakout occurs to the apex the less reliable the formation. in other words.

Wedges are characterized by their boundary trend lines both moving in the same direction.trend line and two lows touching the lower trend line. The Double Bottom is a reversal pattern of a downward trend in a stock's price. Since. This pattern is confirmed when the price breaks upward out of the Bottom Triangle or Bottom Wedge formation to close above the upper trend line. Description Double Bottoms are considered to be among the most common of the patterns. Contrary to Triangle formations. A Double Bottom is only complete. when prices rise above the high end of the point that formed the second low. however. . they seem to be so easy to identify. Double Bottom Implication A Double Bottom is considered a bullish signal. The Double Bottom marks a downtrend in the process of becoming an uptrend. the Double Bottom should be approached with caution by the investor. A Double Bottom occurs when prices form two distinct lows on a chart. indicating a possible reversal of the current downtrend to a new uptrend.

The Flag can be horizontal (as though the wind is blowing it). Flag (Bullish) Implication A Flag (Bullish) is considered a bullish signal. may occur because of buyers' reactions to a favorable company earnings announcement. The sharp price increase is sometimes referred to as the "flagpole" or "mast". Description A Flag (Bullish) follows a steep or nearly vertical rise in price. The pattern is complete when prices rise above the highest high in the formation. The vertical uptrend. although it often has a slight downtrend. and consists of two parallel trendlines that form a rectangular flag shape. that precedes a Flag. . The highest high is called the "confirmation point".The two lows will be distinct. indicating that the current uptrend may continue. or a new product launch.

The lows of the shoulders . The second point .the head happens when prices fall from the high of the left shoulder to an even lower level and then rise again. This pattern marks a reversal of a downward trend in a financial instrument's price. The first point .occurs as the price of the financial instrument in a falling market hits a new low and then rises in a minor recovery. Prices then rise again once they have hit the low of the right shoulder. It is essential that this pattern form following a major downtrend in the financial instrument's price.the right shoulder .occurs when prices fall again but don't hit the low of the head.Head and Shoulders Bottom Implication A Head and Shoulders Bottom is considered a bullish signal. An investor will be looking for increasing volumes at the point of breakout. The third point . It indicates a possible reversal of the current downtrend into a new uptrend.the left shoulder . Description The Head and Shoulders bottom is a popular pattern with investors. A perfect example of the Head and Shoulders Bottom has three sharp low points created by three successive reactions in the price of the financial instrument. Volume is absolutely crucial to a Head and Shoulders Bottom. This increased volume definitively marks the end of the pattern and the reversal of a downward trend in the price of a stock.

Description Rounded Bottoms are elongated and U-shaped. in a classic formation. The pattern is confirmed when the price breaks out above its moving average. The first high point occurs at the end of the left shoulder and beginning of the downtrend to the head. indicating a possible reversal of the current downtrend to a new uptrend. are often roughly equal to one another. The neckline is a key element of this pattern. but on rare occasions can slope up. bowls or saucers.are definitely higher than that of the head and. and are sometimes referred to as rounding turns. . Many technical analysts only consider the neckline "broken" if the stock closes above the neckline. rising from the low point of the right shoulder moves up through the neckline. The neckline is formed by drawing a line connecting the two high price points of the formation. This occurs when the price of the stock. The second marks the end of the head and the beginning of the downturn to the right shoulder. The neckline usually points down in a Head and Shoulders Bottom. The pattern is complete when the resistance marked by the neckline is "broken". Rounded Bottom Implication A Rounded Bottom is considered a bullish signal.

A trend line is a bounding line for the price movement of a security. however. Similarly a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points. TREND LINE PATTERNS A trend line is formed when you can draw a diagonal line between two or more price pivot points. It can also be referred to a Dutch line as it was first used in Holland. They are commonly used to judge entry and exit investment timing when trading securities. . A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. a V-shaped turn would not be considered a rounded bottom. the overall curve should be smooth and regular. For example. There should be an obvious bottom to the bowl. Shape The price pattern forms a gradual bowl shape. Price can fluctuate or be linear. without obvious spikes.Important Characteristics Following are important characteristic to look for in a Rounded Bottom.

and a negative trending chart forms a downsloping line when the support and resistance pivot points are aligned. Trend lines are used in many ways by traders. However. For example. then short at resistance and cover the short at support. Trend lines can be used to identify positive and negative trending charts. below is a chart of the S&P 500 since the earliest data point until April 2008. showing how linear scale obscures details by compressing the data. trend lines have been drawn by hand on paper charts.e. the changes are really an attempt to approximate percentage changes than pure numerical value. however most traders prefer to draw their own trend lines. Short term traders tend to use charts based on interval periods. then a basic investment strategy commonly used by traders. but it is now more common to use charting software that enables trend lines to be drawn on computer based charts. time periods can also be viewed in terms of years. The logic behind this. There are some charting software that will automatically generate trend lines. the price of the security is plotted on the chart every 1 minute). Previous chart from 1950 to about 1990. A second way is that when price action breaks . in the belief that the trend line will hold and the trend will continue further. is that when the price returns to an existing principal trend line it may be an opportunity to open new positions in the direction of the trend. If a stock price is moving between support and resistance trend lines. weekly and monthly interval periods. daily. whereby a positive trending chart forms an upsloping line when the support and the resistance pivots points are aligned. is to buy a stock at support and sell at resistance. is required.g.Trend lines are typically used with price charts.Trend lines on a price chart. Historically. typically presented in the format of a chart such as the above price chart. with longer term traders using price charts based on hourly. Trend lines are a simple and widely used technical analysis approach to judging entry and exit investment timing. such as 1 minute (i. long term data is more often viewed as logarithmic: e. When establishing trend lines it is important to choose a chart based on a price interval period that aligns with your trading strategy. however they can also be used with a range of technical analysis charts such as MACD and RSI. To establish a trend line historical data. Please note that while the Oracle example above uses a linear scale of price changes.

or exiting positions in the direction of the trend. and a trader may consider trading in the opposite direction to the existing trend. it is evidence that the trend may be going to fail.through the principal trend line of an existing trend. .

respectively. Welles Wilder and published in a 1978 book. The Relative Strength Index was developed by J.OSCILLATORS THE RELATIVE STRENGTH INDEX (RSI) The Relative Strength Index (RSI) is a technical indicator used in the technical analysis of financial markets. The RSI is most typically used on a 14 day timeframe. . measured on a scale from 0 to 100. The RSI computes momentum as the ratio of higher closes to lower closes: stocks which have had more or stronger positive changes have a higher RSI than stocks which have had more or stronger negative changes. with high and low levels marked at 70 and 30. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. Momentum is the rate of the rise or fall in price. measuring the velocity and magnitude of directional price movements. Shorter or longer timeframes are used for alternately shorter or longer outlooks. and in Commodities magazine (now Futures magazine) in the June 1978 issue. The RSI is classified as a momentum oscillator. The indicator should not be confused with relative strength. More extreme high and low levels—80 and 20. or 90 and 10—occur less frequently but indicate stronger momentum. New Concepts in Technical Trading Systems. It has become one of the most popular oscillator indices.

INDICATORS MOVING AVERAGE In statistics. a moving average. Then the subset is modified by "shifting forward". A moving average is a set of numbers. The threshold between short-term and long-term depends on the application. which is averaged. and the parameters of the moving average will be set accordingly. like stock prices. each of which is the average of the corresponding subset of a larger set of data points. A moving average is commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends or cycles. also called rolling average. A moving average may also use unequal weights for each data value in the subset to emphasize particular values in the subset. Given a series of numbers and a fixed subset size. It is also used in economics to examine gross domestic product. is a type of finite impulse response filter used to analyze a set of data points by creating a series of averages of different subsets of the full data set. For example. The plot line connecting all the (fixed) averages is the moving average. the first element of the moving average is obtained by taking the average of the initial fixed subset of the number series. This process is repeated over the entire data series. rolling mean or running average. returns or trading volumes. . it is often used in technical analysis of financial data. that is excluding the first number of the series and including the next number following the original subset in the series. This creates a new subset of numbers.

There is a median trendline in the center with two parallel equidistant trendlines on either side. Andrews' Pitchfork is a trend channel tool consisting of three lines. although typically some kind of ordering is implied. a moving average filters higher frequency components without any specific connection to time. usually based on reaction highs or lows moving from left to right on the chart. Viewed simplistically it can be regarded as smoothing the data. These lines are drawn by selecting three points. a moving average is a type of convolution and so it can be viewed as an example of a low-pass filter used in signal processing. the outside . When used with non-time series data.employment or other macroeconomic time series. As with normal trendlines and channels. Mathematically. Andrews' Pitchfork Introduction Developed by Alan Andrews.

The median line is based on two points: point one and the midpoint between points 2 and 3. The blue median line starts at point 1 and bisects the line between points 2 and 3. The first point selected marks the start of the median line. As such. Chart 2 shows a downward sloping Andrews' Pitchfork with Accenture (ACN). Notice that the red median line still bisects the line between points 2 and 3. Chart 1 shows McKesson (MCK) with Andrews' Pitchfork extending up from the June low. but it is steeper than the blue median line. the median line starts a point 1 and bisects points 2 and 3.trendlines mark potential support and resistance areas. Points 2 and 3 define the width of the Pitchfork channel. The red Andrews' Pitchfork shows an alternative median line based on the July low for point 1. Reversals occur when prices break out of a Pitchfork channel. also referred to as pivot points. The outside trendlines are then extended parallel to the median line. A trend remains in place as long as the Pitchfork channel holds. Picking Three Points The first step to using Andrews Pitchfork is selecting three points for drawing. Pitchfork slope depends on the placement of point 1. This controls the slope (steepness) of the median line. The outside trend lines are . These points are usually based on reaction highs or reaction lows.

8% and 38.8 is rounded to 62%. Fibonacci Retracements can also be applied after a decline to forecast the length of a counter trend bounce.2% is often rounded to 38% and 61. Fibonacci Retracements Introduction Fibonacci Retracements are ratios used to identify potential reversal levels. the red Pitchfork uses the August low as point 1. Leonardo Pisano Bogollo (1170-1250). These ratios are found in the Fibonacci sequence. The most popular Fibonacci Retracements are 61. A few basics. an Italian mathematician from Pisa.parallel and equidistant from the median line. These retracements can be combined with other indicators and price patterns to create an overall strategy. Note that 38. chartists apply Fibonacci ratios to define retracement levels and forecast the extent of a correction or pullback. which makes the median line steeper. will provide the necessary background for the most popular numbers. For slope reference. however. It is as follows: . The Sequence and Ratios This article is not designed to delve too deep into the mathematical properties behind the Fibonacci sequence and Golden Ratio. After an advance. is credited with introducing the Fibonacci sequence to the West. There are plenty of other sources for this detail.2%.

). 5+8=13 8+13=21 etc…).6179 etc…. 55.6180 as the numbers increase. • Alert Zones Retracement levels alert traders or investors of a potential trend reversal.2360 as the numbers increase. • A number divided by the next highest number approximates .). 1. • A number divided by another two places higher approximates .6153.6180 (13/21=. • A number divided by the previous number approximates 1. The approximation nears . This is the basis for the 61. 21/34=. 377. while a correction is expected to retrace a portion of the prior advance. 55/89=. note that 1 . 34/55=. 233. As the correction approaches these retracements. The approximation nears . Also. 34. 21/89=. 55/=144=3819 etc…. The approximation nears 1. 55/233=.618 = . 2. .).6181). each number is the sum of the two prior numbers (1+2=3. chartists should become more alert for a potential bullish reversal.3820 (13/34=.0. 144.6176.6176. A bounce is expected to retrace a portion of the prior decline. 5.6190. 1.6181.2360 (13/55=.2363.3818. 89.3820. 55/34=1. After 0 and 1. chartists can identify specific Fibonacci retracement levels for monitoring.6190. 89/55=1. This is the basis for the 38. 34/144=.2359. 8.3820 as the numbers increase. 3.2361 etc…. 34/89=. The approximation nears . 34/21=1.6180 as the numbers increase.618 (21/13=1. 382 • A number divided by another three places higher approximates . 2+3=5. This is the basis for the 23.8% retracement. 21/55=. 13. Retracements are based on the prior move. Once a pullback starts..382. 21. 610…… The sequence extends to infinity and contains many unique mathematical properties.2% retracement. resistance area or support area.2361. Chart 1 shows Home Depot retracing around 50% of its prior advance.6% retracement.