What Is Fibonacci Retracement?
Fibonacci Retracement plots horizontal levels at 23.6%, 38.2%, 50%, 61.8%, and 78.6% — derived from the Fibonacci sequence — between a swing high and swing low. Traders watch these levels as potential support (in uptrends) or resistance (in downtrends) during pullbacks.
The 50% retracement is technically not a Fibonacci number but is included because half-back is psychologically meaningful. The 61.8% level (the golden ratio) is the most-watched retracement and often coincides with strong support or resistance.
Fibonacci levels work partly because they're self-fulfilling — millions of traders watch them, place orders near them, and create the support/resistance they predicted. They're more reliable on higher timeframes (daily, weekly) than on intraday charts.
Reality check: Fibonacci is a tool for narrowing where price might react, not a precise forecast. Combine with other signals (volume, candlestick patterns, momentum) before acting on a Fibonacci level alone.
Related terms
- 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.
- Moving Average — A line plotted on a chart showing the average price over a chosen lookback period.