After a strong move higher a share will need to retrace, this builds up strength for the share to go higher.
Shares cannot go up in a straight line forever, when the re-trace comes it normally heads towards the 50% of the prior move higher.
So if a share went from 50-100 then the area to add longs will be 75, waiting for a re-trace is the smart move rather than chasing a share higher.
Most gamblers will chase the share higher, the smart investor will wait for a better entry.
It's good to use the Fibonacci Ratio in this case:
• 23.8 fib - This level usually has a big influence if the trend is really strong.
• 38.2 fib - This is a good area to enter as well.
• 50.0 fib - This is the half way point and also has an impact.
• 61.8 fib - This level is the last place to find an entry. If the price goes beyond this level then chances are its more than just a correction and more likely a trend reversal.
If you look at the chart below you can see how the fibonacci ratio played perfect support on the way down, ideal trading opportunities.
Please click on chart below for larger image
