50% retracement resistance/support - Aussie Stock Forums

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  1. #1

    Default 50% retracement resistance/support

    *note: as my post count is too high, I cant post images so you will have to copy the url links and post them into your address bar to see the charts. *

    50% retracement level is an important level after a sharp swing of price that should be taken into consideration.

    To calculate the level simply take the high/resistance of the starting point and add the low/resistance of the ending point then divide it by two. This is roughly the level to watch out for.



    Now I will look at ANZ.

    A double top in Oct and Nov followed by a heavy fall found support at around $12.7, this meant a possible retrace resistance at around $15.7. The projected resistance of 50% retracement at $15.7 was reached in early Jan and reversed the rise. This wouldv been a good short as the resistance is unlikely to be broken as the price hesitated and slowed as it nears the level in addition to the Bollinger Bands tightening. The share price penetrated the bol band then on the same day went back down, confirming the resistance. The price then entered a downtrend.

    Following the downtrend, the price fell down to $12

    As support was found at $12, we can now make another projected resistance (15.7+12 divide by 2, = 13.85). At around this level, the price was challenged and in the early hours of trading day appeared to be a bull day but then closed back down at the open. This is a bearish evening gravestone doji evening shooting star (3 patterns combined in 1) with the high right at the higher bollinger bands. REAL BEARISH.
    A closer look:

    You may want to enter the short the day after the doji for the bear confirmation if you wish to be conservative. If you're more risk tolerant entering near the close on that day is enough as its at retrace res+bollband res+shooting star+gravestone doji.

    After that downward movement the price found support at about $12 again. We can then calculate this retracement level and determine possible resistance at $13 (fall started at $14 down to $12, 50% at $13).

    This level was met and the price failed to push through. At this point I do not like to short as there is strong possible resitance at $12 found at previous two falls which forms a double bottom. The fall from $13 to $12 possible resistance is too little for a straight short(put) so I decided to employ bear call spread with legs above the $13 resistance which worked out very well.

    That concludes my analysis of ANZ, I shall look at more stocks in the next couple of days.

    *NOTE: im not suggesting you take all 50% retracements as support/resistance but rather as a point to consider. Do not take this as a pure trading system. I usually look for more confirmations before entry like I did with the short in early Feb. With shorts I take put options or spreads as I do not recommand shorting/longing straight shares without leverage as the moves are not huge.
    Last edited by Joe Blow; 10th-April-2009 at 04:07 PM. Reason: Fixed image links

  2. #2

    Default Re: 50% retracement resistance/support

    Theoretical Overview and Definitions
    The cornerstone of GSCS is the old ‘50 Percent Retracement and Measured Move’
    rule. This rule, familiar to most traders is almost as old as the organized markets
    themselves. It has been traced to the times when insiders manipulated railroad stocks
    in the 19th Century.
    Very true... ( the bit about being very old )

    Think of a pendulum
    It swings up and it swings down..

    But what of the point where the hand holds that pendulum ?

    50 percent rule involves a number of very significant principles..

    Support / resistance .... breakout and reversal

    All can be defined and qualified by the half way points and how they are moving.


    IF the top and bottom of the patterns have the appearance of randomness

    The halfway points do not ..

    The logic of THE RULE is quite simple. At a 50% retracement, both buyers and
    sellers of the previous trend (Up or Down) are ceteris paribus ‘in balance’. Half of
    each holds profits and half of each holds losses.

    The 50% point is indeed an equilibrium point. As such, the equilibrium must ‘give
    way’ BUT EITHER SIDE (buyers or sellers) in either a downtrend or an uptrend may
    prevail at any given matrix or price level.

    Goodman realized both the possibilities for a REVERSAL (as in the case of the
    completed measured move) and a PRICE SURGE. A price surge would be the
    equivalent to the sellers (in an uptrend) and the buyers (in a downtrend) winning the
    tug of war within a matrix. In price action this means prices would fall or rise to at
    least the beginning point of the initial swing!

    One view of halfway points with a mechanical slant

    Still interesting I think



    Fluctuations in Finance

    As do economists, physicists view the economy as a collection of
    interacting units. This collection is complex; everything depends
    on everything else. The interesting problem is: how does everything
    depend on everything else? Physicists are looking for
    robust empirical laws that will describe—and theories that will
    help understand—this complex interaction (2–7).

    To a physicist, the most interesting thing about an economic
    time series—e.g., the S&P 500 stock average index—is that it is
    dominated by fluctuations. If we make a curve of the values of
    the S&P 500 over a 35-year period, we see a fluctuating signal.
    Statistical physicists are particularly interested in fluctuating
    Obviously one key is what all these fluctuations are fluctuating around
    Whether the movement is away from or back to, that thing is the centre..

    And in all this complexity.. it is the action itself that reveals .

    A method of judging the stock market by its own action.


  3. #3

    Default Re: 50% retracement resistance/support

  4. #4

    Default Re: 50% retracement resistance/support

    What are people's thoughts on this one? I came across it in my scans this evening. No huge pattern with long term support and resistance, but a 50% retracement nonetheless!

    RHG retracement.png

  5. #5

    Default Re: 50% retracement resistance/support

    Thats not a retracement

    Its a low which just happens to be 50% of the previous range.

  6. #6
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    Default Re: 50% retracement resistance/support

    Quote Originally Posted by pavilion103 View Post
    What are people's thoughts on this one? I came across it in my scans this evening. No huge pattern with long term support and resistance, but a 50% retracement nonetheless!

    RHG retracement.png
    That's the old Rams Home Loan. Lots of corporate actions with low-ball buybacks, possible delisting and capital return etc.

    It's not a stock for the chartist imo.

  7. #7

    Default Re: 50% retracement resistance/support

    Quote Originally Posted by pavilion103 View Post
    What are people's thoughts on this one? I came across it in my scans this evening. No huge pattern with long term support and resistance, but a 50% retracement nonetheless!
    Agree with both skc and tech/a.
    You need the bigger picture to have a pattern/trend before you start looking at micro behaviour within the larger picture.

    On this site there are some good videos on the left under 'Resources' - free videos.
    It pops up a membership thingy at the end of each video, just go back to the home page and select the next video.
    Note how the shorter term entries work with the larger trend.
    Si Hoc Legere Scis Nimium Eruditionis Habes

  8. #8

    Default Re: 50% retracement resistance/support

    I've noticed that Wycoff also talks about 50% retracement in relation to the direction of the trend (i.e. if the trend is up and it retraces more than 50% = bearish sign).

    At what level of retracement do people think that an uptrend is in threat? More than 61.8%? (obviously other factors to consider also)

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