Historical Simulator Plug-in
In this session, I want to talk to you about retracement levels. Now, it's very important for you understand that markets have a tendency to move in approximately 50% retracements.
Now, as we were talking earlier, you know we talked about support lines, we also talked about resistance lines, and we talked about trends. Now, you'll notice that on a trend, a short-term trend, a mid-term trend, and a long-term trend, that markets have a tendency to make 50% retracements.
Now, you know if you were to grab a piece of paper and a pencil, and say, okay, draw me a chart- everyone would probably draw, you know, just out of habit, you would draw something that looked like this. Just because you've been trained to know that markets retrace when they make movements. So, that's a downtrend market. If you were to draw on that with a piece of paper and pencil, you would have probably drawn a chart just like that.
Instinctively, you know that markets have a tendency to retrace before they drop down again. Then they retrace, drop down again, retrace, drop down again. That's exactly what we're looking at here. Now, if you'll notice- we'll grab this little tool here, which is our 50% tool. If we draw a line down, you'll notice that the market came down, off of our resistance area, down to our support level. We had a little area of support, right in here. See where it bounced off of that level three times? Then, retraced back to the 50% level. Then, off of that one, watch this! Come down here, and we reposition this ceiling, or resistance level. We put it down to the bottom of this move. You'll notice that the market came down off of there. It hit our area, this area of support, and when it bounced back up, it went back up 50% of the last move. Now, it's done that, again. Now, let's put this over here to this move. Let's reposition our tool.. you'll see here, it did it again. It dropped down, and when it retraced, it went back 50%.
We go down to the next one, and we bring it to the bottom. See, it came down off the top of that- hit the bottom area of support, and bounced back up 50%. Then, we can look and watch- where would you think that if this was going to retrace, where would it go to? See, now you can start trying to predict market direction. Where is that market going to go? It has come down off of here. It should retrace back up 50%, right?
Okay, now I want you to go through and I want you to look at 50 charts. I want you to look at these retracement levels. Do that everywhere. You'll notice how uncanny it is, that it happens a lot. Now, it doesn't only happen in small moves, like this.
Let's look at a larger chart. Let's look at Soybean Meal. Now, look at this retracement. This is a much longer retracement. We also see that markets will have a tendency to move, in 50% waves. Even in a longer trend. Now, you see this is about 9 months long. You're seeing your retracement back to the 50% level.
Now, again, I want you to go through and I want you to look at 50 charts on your own; I want you to look for this retracement.
We'll go one more level. Let's look at Oats, I want to look at- on Oats I want to look at a monthly chart. You can look at monthly charts. This is back, if we count them, 1, 2, 3, 4, 5, 6, years. You'll see, on long-term charts, we even see a 50%. Now, this has gone back even further than 50%, but we see a retracement. It has a tendency to go back 50% of the last major move.
Now, every time you look at a market, you need to always keep this in mind. Markets have a tendency to retrace half of the last major move.