What Is Fibonacci Retracement?
Fibonacci retracements mark potential support/resistance levels where price might pause or reverse during a pullback. The key ratios — 23.6%, 38.2%, 50%, 61.8%, 78.6% — are derived from the Fibonacci sequence. Drawn from a swing high to swing low (or vice versa).
The 61.8% level (the 'golden ratio') and 38.2% level are the most-watched and historically the most reactive. Strong trends often retrace 38.2% before continuing; weak ones retrace 61.8% or 78.6%. A break below the 78.6% retracement typically negates the prior trend thesis.
Fib levels work as a self-fulfilling prophecy: enough traders watch them that they generate reactions at those prices. But they're not a strategy by themselves — combine with other technical confluence (moving averages, prior pivots, volume) for trade decisions. Pure Fib trading produces inconsistent results.
Related terms
- Fibonacci Retracement — Horizontal lines at key Fibonacci percentages used to identify potential support/resistance.
- Support and Resistance — Price levels where buying or selling pressure historically halts price movement.
- Trend — The general direction of price movement over a period — uptrend, downtrend, or sideways.
- Fibonacci Extension — Projecting potential price targets beyond the original move using Fibonacci ratios.