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I read in technical analysis that stocks follow Fibonacci retracement. But what’s is the crux reason behind this that golden ratio plays an important role in the stock market while buying and selling are unpredictable?

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    I suspect numerology and self-fulfilling prophecy. The golden ratio itself probably isn't important; you could probably generate retracement levels using any similar geometric ratio and get comparable results.
    – chepner
    Aug 25, 2021 at 13:29
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    The fact that 50% is thrown in, despite having no relation to the Fibonacci sequence used to generate the other levels, suggests that what you are looking at is more closely related to standard deviations on a bell curve than anything to do with the golden ratio.
    – chepner
    Aug 25, 2021 at 13:30
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    Not only does the 'golden ratio' play no role in stock movements, it plays no role in anything in the natural world. All of the mystical properties you hear about from clickbait articles are myths.
    – Brady Gilg
    Aug 25, 2021 at 18:20

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Stocks do NOT "follow Fibonacci retracement." Stocks move around randomly, together with some bias due to overall unpredictable market conditions. Sometimes these random movements correspond to a recognizable pattern on accident, and when they do people notice and say "look at that, a pattern!" Then they give these patterns fancy names like "Fibonacci retracement," and start looking for them in other places, which they will certainly find if they look hard enough. Sadly, any attempt to use these patterns in advance to predict future price movements fail. Sometimes they match on accident, and just as often they don't.

If these patterns worked, then they would quickly be used until they stop working. E.g. If the pattern actually, correctly, showed that the stock price will go up next week, then a whole bunch of people will start buying it THIS week, causing it to go up sooner, and ultimately erasing the pattern.

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There are two schools of thought - one that believes in technical analysis, and one that doesn’t.
I’ll answer from the view of the latter; I’m sure that someone will answer for the former.

With many people believing in the significance of the stock price reaching or crossing certain levels - be it fibonacci levels, support lines, crosses of death, or whichever, those people react by buying or selling, thereby creating a self-fullfilling prophecy. If you want to make money in the market, you need to be aware of these reactions, and act accordingly - sometimes even supporting the supposed beliefs.

Personally, I think it’s like astrology - great if it helps you, but there is nothing behind it.
Again, look forward to the other side explaining you why it’s real, and make up your own mind.

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  • I suppose it is semantics, but if it works because people believe it works it it any less real? The placebo effect is very real, despite being in our heads. Obligatory xkcd.
    – Dave
    Aug 25, 2021 at 16:00
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Why not use prime numbers? Or the exponential sequence of the number two or maybe three?

An entire indu$try has been built around the premi$e that you can predict the market. You can't.

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