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25 The combination of the lower end of the trend channel and the 1.27 clearly defmed this stocks price action. Gateway Computer sold off consistently in this fashion for several weeks. Such a clear set-up yielded nice bounces each time the stock hit this area. Understanding such price action in the future will help you gauge a stocks trend and identify potential opportunities.
1.27 Projection Summary The 1.27 is another important Fibonacci number. It can frequently gauge price action, when a stock has moved into new territory. After a stock has rallied above a previous high, it is the first place to look for potential resistance. If a stock experiences resistance at the 1.27, it possibly indicates that the price move is not as strong as it might seem. So, it can be a good area to take profits. When a stock declines past a significant low, the 1.27 is the first place to look for potential support. Reversals off the bullish 1.27 projection can often yield nice bounces. Therefore, the 1.27 is a very effective number to determine the strength of a stocks overall trend.
1.618 Projection The 1.618 projection is another significant Fibonacci number, because it usually indicates exhaustive price action. Often, when a stock exceeds the 1.618, it represents extreme price action that is difficult to sustain. In fact, I utilize a general rule about the 1.618 that defines the state of the price action. If a stock has rallied above a 1.618 projection from a previous decline, I consider it overbought. If a stock declines past a 1.618 projection from a prior rally, I consider it oversold. Although a stock can trade past 1.618 projections, these rules have saved me from many flawed executions. Since the 1.618 represents price action that is too extreme, reversals that occur beyond this area will usually happen quickly. When the 1.618 projection is in a potential reversal zone and it has been exceeded, I know that I am close to executing my trade. As a general rule, I usually wait for a stock to hit 1.618 projection in a potential reversal zone before accepting a trade. Furthermore, the 1.618 is an especially effective measure if other harmonic projections converge in the same area.
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