Definition – What does Fifty Percent Principle mean?
The fifty percent principle predicts that, before continuing, an observed trend will undergo a price correction of one-half the change in value. This means if a currency pair has been on an upwards trend and gained 30% from the start of the trend, it will fall back 15% before continuing its rise. That said, this rule is most often applied to the short-term trends, so the levels used are often more modest than a 30% rise. The fifty percent principle is also known as one-half retracement.
ForexTerms explains Fifty Percent Principle
The 50 percent principle is most often used in forex to predict waves on a chart. Waves are, of course, part of the larger Elliott wave theory that some technical traders use to trade the market. The 50 percent can also be used in simple trend analysis – it doesn’t care whether you call the peaks on a chart waves or upward trends.