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Re: Trading Fibs

I agree that the 50% level is the most significant.  However it happens that the "golden ratio" (phi) in the fibonacci series is related to 50% by the fact that the first level 1/phi = 61.8%, and the second level 1/(phi*phi) = 38.2%, are equally spaced around the 50% level. 

You can think of them as important psych levels related to the 50% level. We are talking about what proportions look good to the human eye, and what proportions can be easily recognised by the human eye. 

A person can easily see that 50% retracement has happened.  It's so obvious because the amount lost equals the amount gained, 1:1

It's also very easy to recognise when the amount gained is still a much larger proportion of the amount lost, like a 10% retracement is 9:1.

This visual recognition works until you get to 2:1, where you have gained twice as much as you have lost, 66% to 33%. 

Once it drops below 2:1, it goes very quickly towards 1:1 (66 to 50), but there is a level in between these which still looks like you've got more than you've lost, that's golden ratio of proportion.  This is the perfect ratio where a rectangle doesn't look unbalanced.  Beyond this limit, the shape looks either too square or too rectangular.

So at 61.8% you are still convinced that you've gained more than you've lost, but once it goes in between the 61.8% and the 38.2%, it's effectively a 50:50 proposition.