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# FAQ: How do you calculate Fibonacci retracements?

by Editorial Staff
Updated: March 28, 2015

Fibonacci provides the mathematical basis for the Wave Principle. This lesson, adapted from our How You Can Identify Turning Points Using Fibonacci eBook, shows you how to calculate the retracement that corrective waves make.

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Retracements -- Corrective Waves

If we look on the left side of this chart, we see a diagram of wave 1 followed by wave 2. It is common for second waves to retrace .618 of wave 1 – thereby making a deep retracement. We will also be looking for .786. We might often see .5, 50%, but .618 is common. On the right side, fourth waves will commonly retrace a smaller percentage or .382 of wave 3. We might also see something like .236.

Examples

I have put the wave count on this chart of the S&P 500. We have waves 1, 2, 3, 4 and 5. Wave 2 is an expanded flat. Wave 4 is a zigzag. Let’s look at the retracements that waves 2 and 4 make.

We see that wave 2 makes a deep retracement. It comes close to .618. Look at this Fibonacci table that I put up; notice that I put .382, .5, .618, and .786. .618 is 1087.75, and the S&P low is 1090.19.

We see that wave 4 makes a shallow retracement of wave 3. It goes just beyond the .382 retracement. .382 is 1169.1, and wave 4 actually bottoms at 1163.75. In a nutshell, this is what we mean when we say that Elliott waves often correct in terms of Fibonacci ratios.

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#### How You Can Identify Turning Points Using Fibonacci

Learn how to formulate and execute your own trading strategy by combining Fibonacci relationships with wave analysis.

• Format: On-Demand Course - 4 hours 16 minutes | eBook - 90 pages
• Instructor: Wayne Gorman
• Level: Beginner

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