Fibonacci Retracement

Fibonacci retracement is a technical analysis tool that uses horizontal lines to indicate potential support and resistance levels based on Fibonacci mathematical ratios. These levels are derived from the Fibonacci sequence discovered by Leonardo of Pisa.

Key Fibonacci Levels:

• 23.6% - Shallow retracement
• 38.2% - Moderate retracement
• 50.0% - Half retracement (not Fibonacci, but widely used)
• 61.8% - Golden ratio (most important)
• 78.6% - Deep retracement

How to Use:

1. Identify significant high and low (swing points)
2. Apply Fibonacci tool from low to high (uptrend) or high to low (downtrend)
3. Watch for price reactions at Fibonacci levels
4. Combine with other technical analysis

Trading Applications:

Retracement Entries:

• Buy pullbacks to 38.2%, 50%, or 61.8% in uptrends
• Sell rallies to these levels in downtrends
• Set stops below/above the next Fibonacci level

Confluence:

• Fibonacci + moving average = Stronger level
• Fibonacci + support/resistance = Higher probability
• Multiple Fibonacci levels from different swings aligning

Extensions (Targets):

• 127.2% - First extension target
• 161.8% - Key extension level
• 261.8% - Extended target

Why It Works:

• Self-fulfilling prophecy (many traders watch these levels)
• Reflects natural market psychology
• Consistent across timeframes and markets

Limitations:

• Subjective (swing points can vary)
• Not always reliable in isolation
• Best used with other confirmation tools