Fibonacci Retracement

Definition

Fibonacci retracement is a popular technical analysis tool that uses horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before the price continues in the original direction. The key levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%, derived from the Fibonacci sequence. The 61.8% level (the golden ratio) is considered the most significant. Traders draw Fibonacci retracement lines between a significant high and low point, then use the resulting levels to identify potential entry points, stop-loss levels, and profit targets. Fibonacci analysis is most effective when combined with other technical indicators.