All of the chart examples of these rules is explained in detail in our Library. It will also have current analysis based on these rules.
Of these, the 38.2% is the single most important retracement and is the level we use for the "Golden Rule". This rule being, " any market that is going to keep it's current trend must hold 38.2%". As long as it does the trend will continue and it should make new highs/lows from that retracement.
A sub set of guidelines with the 38.2% level are for when the market fails to hold this level and when the reaction from it either fails to make a new high/low, or makes a slightly lower low/higher high and gets right back above the previous high/low.
On the failure to stop at 38.2% it tells us the current trend has changed and to look for 61.8% of the same move. When the market holds 38.2% and the reaction does not make a new high/low, or a slightly higher high/lower low, this is a sign the trend is changing and because they have already reacted from 38.2% you should look for 61.8% of that same move as well. One another note, when dealing with large ranges, you will always have to see how they react when they get back to the 38.2% level the second time, as this is the most important retracement.
- The only time ONE44 Analytics recommends Buying/selling a market when it goes through a retracement, is when it held that level before and had a solid reaction from it.
Whenever the market holds 61.8% of a move, look for it to go 61.8% of where it just came from
When a market hits 61.8% it tells us two things, one, that the we should look for 61.8% back of the current move and two, once dealing with very large ranges that it tends to mean the market is going into a choppy trading range with big swings. For how long? This all depends on the size of the range and the time spent to produce the two levels that the retracement comes from.
Extremely strong/weak market will only go back 23.6%
On another note, when they have reacted to 23.6% and fail to make that new high, or low it is rare that 38.2% is going to hold, it can, but less likely.
When there are extended runs in the market it is always best to watch 23.6% to see just how strong or weak the market is. This retracement level is not for small ranges. This retracement should be from the lowest low/highest high of the current run to be most effective. You will also look for other retracements to line up with this levels using highs and lows closer to the ongoing move.
Any market that hits 78.6% should go 78.6% back the other way.
When a market does react to 78.6% it usually creates wide swings that go through all the other retracements, this either happens in very large trading ranges or very small, it is also the level hit most often when the market is reacting from 23.6% and 38.2% and fails to make the new high/low.
ONE44 Analysis additional guidelines
When dealing with multiple retracements around the same area always go with 23.6%, or 38.2% of the biggest range to really see if anything is changing. At times you will think no retracements are holding, this usually happens when you are over analyzing the market with small retracements, when this does happen go out to the biggest time frame you can and reassess from there. In the Library we will go over all of these rules in action. As is said " A picture is worth a thousand words"
This is just one of many tools used in the ONE44 Analytics analysis, but a very good one for determining the over all trend.