it's based on a concept called OTE. Optimal Trade Entry. It assumes that big players (a.k.a. whales) are not interested in taking profits until this OTE level is reached. It's the zone between the .786 and .618 level. the midlevel of .705 is often pretty close to where a bounce happens so that's why I'm using it.
there is more to this concept. If you are interested check out this website and watch the video trading lessons :) cheerz http://theinnercircletrader.com/Tutorials.htm