Let’s suppose that some factors made the price rise from 100 to 110 dollars, for example, it happened due to a release of positive reporting. This is an impulsive move.
The 50% retracement is a subsequent price decline to $105 from a $110 peak. That is half the impulse. A trend is likely to resume after the 50% retracement.
It usually works like this:
- volumes decrease during a decline;
- the price decreases more slowly during the retracement compared to the increase.
This phenomenon was discovered more than 100 years ago. No wonder that the 50% level of the impulse is described as a very important thing in numerous books on technical analysis for beginner traders.