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It is important to recognize repetitive price action such as this. As long as the stock holds the .618 retracement when it sells off, you know that the uptrend is intact. However, some type of breakdown past the .618 with a bearish continuation will signal that the trend is potentially reversing. Knowing the character of this type of price action can help you identify key tuming points in the stock.

.618 Bearish Channel

bearish channel: resistance at .618 retracements

In a bearish channel, the .618 commonly acts as resistance of the prior sell-off Similar to the bullish channel example, a stock that is in a clear downtrend that retraces off the .618 repetitively can provide high probability trade set-ups with very limited risk. Lets look at an example of this type of price action.



The following chart of Barrick Gold clearly illustrates a bearish downtrend that experiences significant resistance at the .618 retracement of the prior decline.

BARfflCK GOLD (ABX): DAILY

.618 BEARISH CHANNEL

Does anyone see a pattem here? I think this is substantial evidence of the significance ofthe .618, especially in a repetitive trend. When the .618 acts as resistance in a trend, the price action can be very strong. The existence ofthis coil of .618 retracements indicates that this stock is very



influenced by Fibonacci numbers. Knowing this, I can assume that the numbers should accurately gauge the price action and identify potential opportunities in the future.

In this example, the .618 provided several opportunities of picking up at least a few points every time the stock bounced to retrace the .618 of the prior down leg. Quantifying and understanding the nature of such price action will greatly improve your executions.

.618 Retracement Summary

The .618 is a very effective Fibonacci number that reveals a great deal about the overall trend of a stock. The .618 retracement is the first area to examine for potential support when the stock is declining, and it is the first area to examine for potential resistance when the stock is rallying. Channels that develop with .618 retracements offer high probability trade set-ups that have a low risk. Also, most technicians are aware of the .618 - or as they like to tell the public, a two-thirds retracement. So, when a .618 reversal has occurred, it is my opinion that a greater amount of technical traders participating in that stock are aware of this price action. Hence, the .618 reversal point becomes an even more significant price point.



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