Golden Section

In the stock market, there is a magic number that can help investors find the buying and selling points of stocks, so that they can sell high and buy low and make profits. This number is the golden ratio.

The golden ratio is an infinite non-repeating decimal, approximately equal to 0.618. It refers to dividing a whole into two parts, and the ratio of the larger part to the whole is equal to the ratio of the smaller part to the larger part. The golden ratio is considered the most beautiful ratio in nature and is widely used in mathematics, art, architecture and other fields.

So, how does the golden ratio work in the stock market? Simply put, the golden ratio is used to divide the rise and fall of stocks to find possible support and resistance levels.

The support level refers to the rebounding force encountered when the stock price falls, and the resistance level refers to the falling force encountered during the rising stock price. Support and resistance levels can be regarded as psychological gates for stock price movements. They reflect the market's supply and demand relationship and expected sentiment.

In a rising or falling market, the stock price often does not move in one direction all the time, but has a process of repeated corrections or rebounds. At this time, the golden ratio can be used to divide the rise and fall of the stock price, and determine possible support and resistance levels based on different ratios.

Specifically, if we use the starting point and end point of a round of rising or falling market as the benchmark, and divide the rising or falling range according to proportions such as 0.236, 0.382, 0.5, 0.618, 0.809, etc., we can get the corresponding golden section point. These golden points are the support or resistance levels that the stock price may encounter after a reversal.

For example, let's say a stock goes from $10 to $20 during a rally, a 100% increase. If we divide the increase according to the golden ratio, we can get the following golden ratio points:

$10 + $10 x 0.236 = $12.36

$10 + $10 x 0.382 = $13.82

$10 + $10 x 0.5 = $15

$10 + $10 x 0.618 = $16.18

$10 + $10 x 0.809 = $18.09

These golden points are the support levels that stock prices may encounter when they pull back after the uptrend ends. If we want to sell the stock at a high level, we can set profit take points based on these support levels. In the same way, if we want to buy a stock at a low level, we can set a stop loss based on these support levels.

Of course, not all golden sections will be effective, some may be easily broken through, and some may form strong support or resistance. Generally speaking, the three golden ratio points of 0.382, 0.5 and 0.618 are the most commonly used and most effective. They correspond to weak support, medium support and strong support of the stock price respectively.

In actual operations, we can combine other technical indicators, such as moving averages, Candlestick charts, MACD, etc., to determine the trend and turning point of stock prices, thereby improving the use of the golden section. In addition, we must also pay attention to the volatility of stock prices and changes in market sentiment, and flexibly adjust our buying and selling strategies.

In short, the golden section is a simple and effective technical analysis tool. It can help us find the buying and selling points of stocks, so as to sell high and buy low and make profits. However, it is not omnipotent, nor is it the only one. We must combine other factors and make comprehensive judgments in order to dominate the stock market!