How To Trade 50% Retracements

Technical analysts often use Fibonacci retracement levels as targets when trading stocks. The key Fibonacci numbers are ratios derived from the Fibonacci series. A Fibonacci series starts with 0 and 1 and then each successive number is the sum of the previous two (0,1,1,2,3,5,8…).

The two key trading ratios are 61.8 percent and 38.2 percent. These two ratios are found by dividing each number by the number than follows it and by the number two places to the right.

Fibonacci traders try to capitalize on the fact that stocks tend to retrace big moves to these important Fibonacci levels. However, as PreMarket Prep’s Joel Elconin recently discussed, there’s another key retracement level to watch.

“Something that I’ve really always paid more attention to is the 50 percent retracement,” he said. “If a stock has a huge run up, if I take a short, even if it pulls back 50 percent intraday you can find algorithms that will be looking at that level as well.”

Related Link: How To Trade Gaps In Price Action

According to Elconin, the 50 percent retracement level can serve as a target level to cover a short or to take a long position in a stock.

He concluded by pointing out three potential 50 percent retracement trades in the market:

• General Electric Company GE found support at $31 level after its move from $29 to $33.
• Twitter Inc TWTR’s 50 percent retracement of its recent move is around $18.40.
• Apple Inc AAPL’s 50 percent retracement of its long-term move from $60 to $134 was in the mid $90s, near where it found support earlier this year.