We use retracement levels to find out support/resistance for the stock/commodity. In this respect two great masters viz. Leonardo Fibonacci and W D Gann have given following important levels:
Leonardo Fibonacci W D Gann
0.382, 0.50, 0.618 0.25, 0.33, 0.50, 0.66 and 0.75
While the above ratios do work at different times, it leads to confusion about choosing one over the other. From the above ratios we can observe that 0.50 levels is common to both the masters. To explain the importance of this level, we can take the analogy of a seesaw, which most of us have enjoyed as a child. Just as the seesaw tilts on the side which is heavier, same way market price will go in the direction which is heavier. i.e. Above 50% level (midpoint), buyers dominate and below 50% sellers dominate.
In his various writings, W D Gann emphasized the importance of 50% level with respect to the following:
1. All time high
2. All time high and low
3. Swing high and low
4. Calendar period high and low
5. 52 weeks high and low
Let us now understand the practical application of this idea based on the above rules laid down by W D Gann.
All time high: 50% of the All Time High acts as a support. When markets corrected in 2008, major support for many of the stocks was 50% of the all time high. For example, all time high for NIFTY FUTURE is 6336 and midpoint of the same is 3168. This level will act as support and resistance till such time a new high is made.
All time high and low: In this case we have to consider 50% or midpoint of the range of all time high and low of the stock/index.
Swing high and low: In this case we have to consider a swing on the chart. 50% of this level is always an important support/resistance. Higher the time frame of the chart, more significant will be the importance of the 50% level.
Calendar period high and low: We need to consider calendar periods starting from the lowest level i.e. Day, week, month and the year. For ready reference, one needs to prepare an excel worksheet every day and keep it handy while trading. 50% level for all these time frames, will act as a good support and resistance level at least once.
52 week high and low: 52 weeks’ high/low will change as time progresses. Currently, this figure for Nifty Future is 4939 i.e. midpoint of the High 5537 and Low 4341. Thus market will show strength above the level of 4915 and show weakness below this level. In the coming weeks, when 52 week low increases to 4532 and assuming that 52 week high remains unchanged, we will have 50% level at 5035. When this happens, we will have bulls dominating above 5035 and bears dominating below it. Just as 200 DMA is considered important to identify the bullishness/bearishness for the stocks, similarly, items trading below the midpoint of 52 week high/low show weakness, while those trading above this level show strength.
Important for Day Trading:
This method is a very simple and effective tool for day trading, as it helps us to be on the right side of the market. If you are able to get this level on the trading terminal itself  it can be done on the NSE’s NOW terminal, it eliminates the hassle of computing separately for each scrip. Moreover, this being a dynamic figure, you won’t need to recompute when new High or Low is made. For day trading purpose, you can assume that stock is strong above the day’s midpoint and weak when below it. To further improve the odds for a successful trade, you can use it in sync with the Tick Average available on the terminal.
I am sure the above analysis will help you to know when the balance of power shifts from the bulls to the bears and viceversa, on different time frames. You can first test this idea on Nifty/Bank Nifty future and if you find it profitable, you can also apply it to any index, stock or commodity. Moreover, it is helpful for those who do not refer to the charts for trading. I have given below a format (based on EOD data on 20.8.2010) that is easy to compute and gives all the information referred in point 4 & 5 above.
TURNING POINTS GRID FOR 23.08.2010
Scrip Name 
52 Week 
2010 
August 2010 
Week ended 20.08.2010 

High 
Low 
Median 
High 
Low 
Median 
High 
Low 
Median 
High 
Low 
Median 

Nifty Future 
5537 
4341 
4939 
5537 
4667 
5102 
5537 
5364 
5451 
5537 
5393 
5465 
Bank Nifty Future 
11111 
6974 
9043 
11111 
8141 
9626 
11111 
10171 
10641 
11111 
10632 
10872 
Dow
Jones

11258 
9117 
10188 
11258 
9614 
10436 
10720 
10147 
10434 
10480 
10147 
10313 
Reader feedback welcome at turningpoints.in@gmail.com. Author’s views on Nifty Future can be read daily at www.go2turningpoints.blogspot.com
Disclosure: No Positions