Fibonacci Retracement is a technical analysis tool based on the Fibonacci sequence, used to identify potential support and resistance levels. It's based on the theory that markets, after trending, typically retrace to specific Fibonacci ratio levels before continuing the original trend.
Fibonacci Sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89... Each number is the sum of the previous two Key Ratios: 23.6% = 23.6% retracement from high 38.2% = 38.2% retracement from high 50.0% = 50% retracement (not Fibonacci ratio, but widely used) 61.8% = Golden ratio, most important retracement level 78.6% = Deep retracement level Calculation: Retracement Level = High - (High - Low) × Retracement Ratio
Fibonacci Retracement: Identifies support/resistance after trend retracement
Fibonacci Extension: Predicts targets after trend continuation (127.2%, 161.8%, 261.8%)
Fibonacci Time Zones: Predicts timing of significant price movements
Fibonacci Fan: Combines trendlines with Fibonacci ratios
Fibonacci Arcs: Displays support/resistance in arc form
38.2% Retracement: Shallow retracement, indicates strong trend
50% Retracement: Medium retracement, psychological key level
61.8% Retracement: Golden ratio, most important support/resistance, deep retracement
78.6% Retracement: Very deep retracement, may signal trend reversal
Multiple Fibonacci Confluence: Multiple Fibonacci levels overlap, forming strong support/resistance zone
Fibonacci Breakout: Price breaks key Fibonacci level, confirms trend continuation or reversal
In uptrends, draw Fibonacci retracement from swing low to high, seeking pullback buying opportunities. In downtrends, draw from swing high to low, seeking bounce selling opportunities. 61.8% level is most important, usually the last line of defense. Combining Fibonacci with other technical tools like trendlines, moving averages, or support/resistance can improve accuracy.
Provides objective support/resistance levels, widely recognized creating self-fulfilling prophecy, applicable to all markets and timeframes, can predict targets, works well with other technical tools
Subjective (different high/low selection yields different results), not all retracements stop at Fibonacci levels, requires clear trend for effective use, may generate multiple signals causing confusion
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