I had mentioned a couple of days ago about a 50% retracement, and as much as we don't want to see that type of action, it is as common as seeing designer guy come out from under the rock each down day.
Gann and the 50% retracement
Posted on8.12.2010In the early years of the 20th century, a trader named W.D. Gann postulated that many if not most share price retracements were equal to roughly 50% of the original move. As an example, if a stock rose from 2.00 to 4.00, when buying pressure eased and the share price retraced, it was likely to return to the 3.00 level. This theory was later modified to ±5%, or a range of 45% to 55%.
This postulation creates a dilemma for share traders:
• If the retracement theory is accurate, the original move can be expected to resume once the initial profit-taking is complete and the buying pressure resumes. Therefore, when the price has retraced by 50%, the trader should either re-enter the market if he exited, or add to his existing position if he didn’t. It’s another wrinkle in the “buy on dips” concept.
• However, the 50% retracement rule doesn’t always work, and sometimes the final figure is not 50% or even 55%, but 100% or more, as the rally turns into a rout. In that case, the trader re-entering the market or adding to an existing position is turning a small loss into a much larger one.
The solution to this dilemma is a common one in share trading, and that’s to await confirmation—from a momentum indicator, an oscillator, a resumption of the move higher, or most preferably, a volume spike. When the move higher has been confirmed, that’s the most appropriate and safest time to enter or re-enter the market.
Google this for yourselves and do a bit of reading, it's very common when you have such a strong move as we saw with Allana.....
I think we could use 80 cents and 2.25 as our move, as these were closing prices. The math will take us somewhere around $1.50 plus or minus, if 80/2.25 are the correct numbers to use. The more you read about it the more you become comfortable with what we are seeing, and why you would want to add monday or tuesday if you can get it.....
AI
